Yahoo Finance Experts: If a Company You Invest In Does Layoffs, Should You Sell Your Stocks?
You read the headlines and see that a company you invest in is doing layoffs. You start to panic at the thought of losing money.
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Instead of going that route, it’s important to stay calm and consider the big picture — rather than focusing on doom and gloom and making a rash decision that won’t pay off for you in the long run.
Here’s what financial experts say about companies doing layoffs and whether you should sell your stocks.
Layoffs Are More Common Than You Might Think
R.J. Weiss, certified financial planner and CEO of The Ways to Wealth, said that companies do layoffs consistently, and layoffs do not signal that underperformance is coming from its stock.
“Case in point, Facebook and Google made layoffs 12-24 months ago, yet their stock prices have risen,” he said. “It’s definitely news, and if you’re invested in the stock, you want to understand why, but by no means is it a red flag in terms of selling a stock.”
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Layoffs Are Only One Factor To Consider
Ryan Jacobs, the founder and managing partner of Jacobs Investment Management, LLC, said that choosing whether to sell your stocks when you’re basing it solely on a company doing layoffs is not a sufficient measure of the company’s future performance.
“There are many reasons as to why a company would be doing layoffs,” Jacobs said. “Some of the reasons may be they are divesting away from less profitable lines of operation, and are focusing on areas that generate a better return on investment.
“Other reasons could be due to an abundance of workers with a specific skillset. Over-hiring has been a problem, especially for the tech industry where companies tend to over-hire in areas like software engineering. Some industries are also more prone to layoffs due to the cyclical nature of the business climate they operate in.”
Jacobs said that it’s important to understand that layoffs are just one factor that investors should pay attention to when conducting fundamental analysis.
“One should not hinge the decision to sell any securities based solely on something like layoffs without having the full picture of the operational position the company is in,” he said.
Stock Performance Often Improves Over Time
“Announcing layoffs may be related to a large move in a stock price,” said Asher Rogovy, chief investment officer at Magnifina, an SEC-registered investment advisor.
“At times, companies seem to announce layoffs in response to poor results marked by a sharp decline in their stock price. The announcement is an effort to cut costs and satisfy institutional investors. It is not necessarily a sign of doom for the company.
“Poor management tends to look only a few quarters ahead. Sudden layoff announcements can be a sign that management is too short-sighted. However, they are often effective and can serve to get a company back on track.”
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This article originally appeared on GOBankingRates.com: Experts: If a Company You Invest In Does Layoffs, Should You Sell Your Stocks?
