Are You Guilty of Panic Selling?

'Fess up if you are. Don't feel bad, though, as many investors let their emotions get the best of them and resort to the SELL ALL button on their trading website.

The urge usually comes the night before. Many times it occurs after a weekend of bad news or after a lackluster after-hours report.

I have been a professional money manager over the last 18 years, and I can usually tell who is going to call and when they are going to call to hit the panic button. These nervous types represent about 1% of my clientele, even after I have tried real hard to get that number down to zero.

I am not saying that selling everything is unwarranted in every situation, however. It depends upon what you own. This last Monday was a very good example. More bad news out of Europe over the weekend and before the open of the market led to about a 200-point selloff.

I received one panicked message on my cellphone late Sunday night. I listened to it on my way to work before the market open on Monday. It was from one of my usual suspects and it came during a very typical period of time in the market-high volatility.

The problem is that the markets are almost always volatile. It seems that there is always some wall of worry to climb somewhere. If is not the latest jobs report in the U.S. then it is the rising interest rates in Spain.

How does one learn to handle volatility, and is it wise to hit the panic button and sell everything? Again, the answer is very logical. It depends upon what you own.

I went through all of my holdings on Monday, just as I do every other day. I usually own about 25 stocks in the portfolios that I manage. By the way, my aggressive portfolio is now up 14.1% year-to-date, while the Standard & Poor's 500 is up just 6.2%.

During my daily walk through the market, I check the relative performance, valuation and charts of the stocks that I own. My intent is to hold my positions for several years, but this is rarely possible. Everything checks out fine, then the only decision I have to make is to hold on, or maybe even buy some more.

If there is something that I don't like about the performance, valuation, or chart, however, it is time to move on. Again, I try to keep turnover to a minimum, but I also have to do what is in the best interest of the portfolio.

Let me give a few examples from Monday's trading. We will begin with Dollar Tree ( DLTR). The stock has been in my portfolio since May 2010. It is now up 169% since being purchased.

First, I look at the relative performance:

As of Monday, the relative performance of the stock was fine. It has clobbered the S&P 500 over the last one, three, five, and 10 years and gets an A performance grade when compared to over 2,800 other stocks. In addition to this it still gets a momentum grade of A.

Next I look at valuation:

Valuation is finally starting to give me a little heartburn. A forward PE ratio of 19.44 and a PEG ratio of 1.10 are a little high and I will definitely be keeping an eye on this going forward.

Next, I check out how the stock checks out overall from a performance and valuation basis:

Dollar Tree continues to be ranked in my top 20 overall. It has been in my top 200 for a few years now and there has been no reason to sell it along the way. All good things must eventually come to an end, however -- hence the daily checkup.

Lastly, I look at the chart of the stock:

The trend remains in place for now, but obviously I will continue to check it on a daily basis.

Now let's look at a stock I sold on Monday and why.

Valuation on O'Reilly Automotive ( ORLY) still looked fine.

Relative performance still look good, but the momentum grade had slipped to B+.

I did not like the descending tops in the chart after a great 12-month run in the stock. After looking at the chart every day over the last year, I just did not like the way that the stock was trading. I also did not like the way AutoZone ( AZO) was trading. For this reason, I was lucky enough to sell this stock before it got bashed on Wednesday.

Next time you feel a panic attack coming on and have the urge to sell everything, calm down and check out the health of each individual stock. A methodical, unemotional approach to the market may end up being your best friend!

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Follow me on twitter @billgunderson
At the time of publication the author had a position in DLTR.

If you liked this article you might like

Cramer: 10 Stock Surprises

Cramer: 10 Stock Surprises

3 Tips for Surviving a Stock Market Crash

3 Tips for Surviving a Stock Market Crash

Nobody Rings a Bell at the Top

Nobody Rings a Bell at the Top

Jim Cramer: The Surprising Stock Market Winners That Investors Are Chasing

Jim Cramer: The Surprising Stock Market Winners That Investors Are Chasing

What's Coming Out of Washington: Cramer's 'Mad Money' Recap (Wednesday 1/17/18)

What's Coming Out of Washington: Cramer's 'Mad Money' Recap (Wednesday 1/17/18)