Photo by Usman Yousaf on Unsplash

Last week, I told my premium subscribers to get out of a stock that had been panic-sold two months earlier. By understanding exactly what was going on, we avoided the panic-triggered losses and sold at a price 130% above the selloff low.

So, let’s talk about how not to be an emotion-driven, lose-your-money, panic-selling investor…

In early March, REIT Cedar Realty Trust (CDR) agreed to sell itself to Wheeler Real Estate Investment Trust (WHLR) for $29 per common share. However, the sale did not include the redemption of the two outstanding CDR preferred stock issues, CDR.Pr.B and CDR.Pr.C.

Investors holding the CDR preferred shares panicked and dumped their shares. CDR.Pr.B was one of my recommended investments, and we saw the share price quickly drop from $25 to $10 per share.

The reason for the selloff was that investors knew Wheeler had not paid a preferred stock dividend in years. Because of this, they assumed the CDR preferred dividends would also be suspended.

I knew it was unlikely that the deal would work if Wheeler were just going to dump the CDR preferred stock shareholders. I told my subscribers to hold their positions until I could dig up more details.

After reading through the SEC filings, I understood that Cedar Realty would become a subsidiary of Wheeler. For Wheeler to receive profits from the Cedar Realty assets, CDR’ preferred shares would have to continue to be paid.

The CDR.PrB share price went into a gradual recovery. On April 19, the company announced the subsequent preferred stock dividends, to be paid on May 20. By the first week in May, the share price was up into the low $20s, over 100% higher than the bottom during the panic selling.

Here are some lessons about what to do if one of your stocks goes through this type of stock selloff and recovery:

• Don’t be part of the panic selling. You are certain to take a big loss that may not be necessary.
• Because of the panic selling, the initial selloff will almost always be overdone. Waiting for a bounce will likely get you a better exit price if you determine you need to get out of a stock.
• Don’t base your decision on news headlines or what online pundits say about the stock. Go to the source and make your own decision based on the real information.
• Panic selloffs can often be opportunities for future profits. Uninformed investors hate uncertainty (which is ironic if you think about it), and their bad decisions can set you up for some excellent profits.