I am a position trader who holds stocks for weeks to months. Sometimes, it can be as short as days for bad trades where my stops are hit within a few days. I do not like to hold stocks in a weak market. Diversification is no protection in a bear market because most stocks just go down, even the good ones, in a bearish market conditions. Cash provides peace of mind in a bear market. For stocks which stay strong in a bear market, there is no reason to sell but there are very few of them.
I have seen it is extremely rare for blue chips to become worthless over-night. There is an argument for culling poor performers, but on a multi-decade horizon this should be perhaps more based on dividends, total returns etc. rather than share price, let alone market index strength. I'm going to say that many investors do badly because they want to treat risk like traders, and many traders do badly because they want to treat profits like investors.
At what point do you decide to get out? The further a stock drops the higher the percentage gain needed to get back to break even. My awakening was the Canadian favourite Nortel. The talking heads had it as a buy all the way down. I didn't sell when I should have because I didn't want to pay capital gains tax. By the time I sold that was no longer a problem. I can name a few more but what I learned is that the only thing I have control over is when I buy and sell a stock. If you own a stock and have a profit, what is the downside to going to cash if the market starts to turn down? When I started investing and the commissions were 3% a side it made sense to not move in and out of the market. Today with commissions being negligible it makes no sense to hold a position that is in a down trend.
I used to think that BTFD was dangerous because of a pavlovian response that was being ingrained. I realize now is that it is much more dangerous. People are much smarter than dogs. As such, BTFD includes a collection of narratives that has been deeply ingrained into the investor psyche. When the markets breaks down and revalues, people will refuse to let go. It could drag out. I have frequent talks with a professional money manager who is planning to move his clients into Theme investing. Not as satellite holdings to enhance the equity portion benchmarked to a 60/40 index, but as the complete equity framework. I tried to remind him how the Fidelity era of sector investing came and went. He keeps sending me a 10 year chart of SPX. People are locked into a long term extrapolation of the price series now which they confuse with the merits of long term investing. The world has lost it's mind...once more, again.
To add to what tomorton said, the reasons for selling should be consistent with the reasons for buying. If a trader buys based on price action, then he should sell based on price action as well. If the trader buys a blue-chip because he likes the positive price-action with a short-term time frame in mind, then he should not switch to thinking like a long-term business fundamentals investor when he sells. Buy as a trader, sell as a trader. Buy as an investor, sell as an investor. Both methods work as long as one doesn't mix up the buy and sell process.
BTFD(Buy the f*king dip) strategy has worked well for a long time in this very long bull market. When the bear finally arrives, many people will be at high risk of "buying the crash" because they have been conditioned by the bull market into thinking that BTFD is a great strategy. In a bull market, the most reckless trader/investor is likely to be the most profitable one because risk management holds back profits in a bull market. One tends to acquire bad risk management habits in a bull market. Without proper risk management, it is easy to give back past profits made in the bull market when the bear market finally arrives.
It's very refreshing to meet an astute Singaporean trader/investor with an outside view of the US market. Are you local, lah?
I've set out the line of thought I would follow if I was investing in company shares on a multi-decade horizon. Share price is not the unique concern on that basis.