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My portfolio contains stocks in specific American companies which I bought when I figured their stock was underpriced. Now there are public attacks against some of these individual companies that affect their stock price.

The attacks are random and while the immediate effect on the stock price is bad, the long-term effect is not clear.

I am trying to decide whether to keep these individual stocks and, on a broader point, how much to continue to invest in the large US corporations at all.

What information should I use to make the decision as to whether to keep the individual stocks or not?

If it makes any difference, my time horizon is the next three months --- I usually rebalance my portfolio after every tax season.

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    public attacks against some of these individual companies should be the least of your concern and how the company deals with it is of importance. A mature and level headed response means the company can sail through or can adapt with changing times. So much hate is spewed against oil companies, but they are still prospering. BP was taken to the cleaners but it has now emerged lean and ready for the next challenge. Sugar hate against Pepsi and Coca Cola, but they are still selling and increasing profits for their shareholders.
    – DumbCoder
    Jan 31 '17 at 14:08
  • @DumbCoder Yes, but those other examples you give don't seem to have had the same effect on the stock price. Heck, I bought BP immediately after the Deepwater Horizon event. I didn't time the sale quite right, but I sold with ~50% profit.
    – Peter K.
    Jan 31 '17 at 14:27
  • @Downvoter: Any comment on why?
    – Peter K.
    Jan 31 '17 at 20:59
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The easiest way to deal with risks for individual stocks is to diversify. I do most of my investing in broad market index funds, particularly the S&P 500.

I don't generally hold individual stocks long, but I do buy options when I think there are price moves that aren't supported by the fundamentals of a stock. All of this riskier short-term investing is done in my Roth IRA, because I want to maximize the profits in the account that won't ever be taxed. I wouldn't want a particularly fruitful investing year to bite me with short term capital gains on my income tax. I usually beat the market in that account, but not by much. It would be pretty easy to wipe out those gains on a particularly bad year if I was investing in the actual stocks and not just using options.

Many people who deal in individual stocks hedge with put options, but this is only cost effective at strike prices that represent losses of 20% or more and it eats away the gains. Other people or try to add to their gains by selling covered call options figuring that they're happy to sell with a large upward move, but if that upward move doesn't happen you still get the gains from the options you've sold.

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  • Thank-you for the information! I'll have to read up on what you're doing and see if it'll work for me.
    – Peter K.
    Jan 31 '17 at 15:12

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