TIME TO SELL?

You own tech stocks or tech mutual funds and all of a sudden, you’re in a world of hurt. Is it time to sell?

It’s a personal decision, of course, and, unfortunately, it isn’t easy. You don’t have an audience to ask, and you can call your dad, but what does he know?

If you’re wrestling with the sell decision, which many investors consider the toughest decision of all, it might help to ask yourself these questions:

* Are you a short-term trader or a long-term investor? If you have a short-term horizon because you are a trader by nature--or perhaps because you plan to retire soon and start condo hunting in Palm Springs--it might indeed be time to cut your losses or preserve any profits you still have. And let’s be clear: Investors who have been in tech stocks for several years probably still have huge paper profits.

With any individual stock or sector, a reversal of fortune can last for an excruciatingly long time. Lucent Technologies may be an example of that in spades: After beating profit estimates for 15 quarters in a row, the telecom equipment giant has now issued its third profit warning this year.

Lucent also is an example of why some investors sell at the first sign of trouble with any company, basing their decision on the so-called cockroach theory: Just as the sight of one of those filthy critters means others are probably lurking in the walls, one piece of bad news is often followed by many more.

But why sell Lucent now--with the stock down 75% from its peak? Won’t it rebound?

Perhaps. But beware the I-Just-Want-to-Get-Back-to-Even Syndrome. If you bought a stock at $50 and it’s now $30, it’s easy to say, “I’ve lost 40%, I’m not selling now.” But if it falls to $15, you will have lost 70%, at least on paper.

Moreover, at $15 the stock must rise 233% to get back to $50. A rise of 70% from $15 would only get you back to $25.50, barely half your cost.

Psychologically, it can be hard to admit your mistakes. But for investors with short-term horizons, acknowledging that you have picked a loser and moving on can save you a lot of pain--and avoid having capital tied up in dead-money stocks.

* Even if you consider yourself a long-term investor, what does that mean, exactly? If you’re 28, you probably have the time and earnings power to recover from your investing mistakes--whether or not Lucent ever does.

Many market watchers expect the market to rally later this year, as is traditional in the fourth quarter--once we get past the seemingly standard October slump. So it could pay handsomely to have patience--or even to be a buyer here.

Indeed, as Baron Nathan Rothschild put it, “The time to buy is when the blood is running in the streets.” (Then again, he never owned Lucent.)

But if you’re 58 and “long term” means just a few years before you planned to cash in your tech stocks anyway, it might be time to start the process of better diversifying your portfolio.

After all, if you were unlucky enough to buy at certain market peaks in the 20th century, you could have spent 20 years waiting just to get even.

You don’t have to sell everything now, and you probably shouldn’t. But if you need to lower your portfolio’s risk level, starting the process--and committing yourself to selling more stock if prices indeed rebound in the months ahead--could well serve your long-term financial goals.

* How strong is your stomach? If you believe in a buy-and-hold strategy in theory but tremble every time you click on CNBC these days, you might need to rethink your portfolio--especially if it’s heavy in tech shares.

With a mix of different types of stocks--small and big, value and growth, domestic and foreign--you might never be able to brag about beating the market, but you will probably sleep better. And that’s worth a lot.

* Has your opinion of a particular company changed? If you bought Lucent, for example, mainly because of its earnings consistency, that rationale has been destroyed.

One portfolio manager spoke for a lot of Lucent investors when he told Bloomberg News on Wednesday, “It’s time to take my losses and head to other grounds. How many times are we going to have bad news?”

If you believe the Wall Street analysts who say Nortel Networks now has a big competitive edge over Lucent, trading Lucent for Nortel might be the smart move.

However, you might still believe Deborah Hopkins, Lucent’s chief financial officer, when she says, “Our problems have been identified and they are very fixable. I believe we are sitting on a gold mine.”

Motorola, for its part, has recovered from many stumbles during its long history. Indeed, the company reinvented itself several times in the last century as new technologies emerged. If you think it will do it again, why listen to the naysayers and sell?

If you decide to hold on to a troubled stock, you don’t have to be passive. Remember: You own the company (one-bazillionth of it, anyway). Many Lucent holders, for instance, are urging the board to fire Chief Executive Rich McGinn.

* Are there good tax-related reasons for you to sell? If you have realized capital gains this year or anticipate them, it could pay to sell some of your losers to offset those gains.

Under IRS “wash sale” rules, you can sell to take a tax loss, then buy the stock back 31 days later without getting penalized.

* Are you worried about the economy? The big picture is an issue here: If the falling market is telling us that a recession is coming, liquidating some of your stocks and moving into cash could turn out to be a very savvy move.

The market isn’t always so predictive, of course. But if it is foretelling a recession, many stocks could fall far lower than they are today.