Which decision requires more mental gymnastics?
When to buy?
When to sell?
The author of Almost DailyBrett humbly opines that when to sell is the tougher call.
There are two kinds of remorse: ‘Darn it the stock kept going up after I sold’; and the worse one, ‘I could have sold when the stock was up, but I was a pig … and oh fiddlesticks, now I am selling when the stock is down.’
Yep, there are a lot of potential could-of, would-of, should-of when it comes to selling.
So what should you do in the view of this humble retail investor (read: Charles Schwab account)?
Don’t Fall in Love
“…Sometimes the most obvious question really is the question. In Enron’s case: How do you make money?” – Bethany McLean, Fortune Magazine
Preparing to teach Corporate Public Relations/Investor Relations to Central Washington University seniors and a few juniors starting this coming Wednesday, yours truly will pose the same simple question that Fortune’s McLean posed to Enron’s Jeffrey Skilling: “How do you (Enron) make money?”
Communicators need to have elevator pitches at their ready when asked this very same straightforward question about their own employer. The same is true for investors: How does a company make money? If the answer is clear; you like the company; you understand the business strategy; you have done your homework including consulting with your financial advisor, then it may be time to purchase shares of the company stock.
This particular company’s stock is now part of your diversified portfolio, which in turn represents a portion of your retirement savings, a child’s college education, that dream vacation etc.
All is good, but when does it make sense to sell?
Buy and hold is a sure loser. Why? At some point, stocks will stop growing. Your invested company certainly will change, and not necessarily for the better. Circumstances may shift and a wave of caca may hit a company or an industry.
Remember the Internet bubble two decades ago? It burst.
Remember the housing bubble a decade ago. It burst.
Don’t fall in love with your securities. Follow your instinct and your plan. When it is time to pull the trigger and unload the stock, then sell the shares.
Have a Plan
“I love the company. I hate the stock.” – Jim Cramer on Tesla (NASDAQ: TSLA)
Okay, it’s time to confess: I fell in love with the Elon Musk Ion-Lithium Battery/Electric Car story at Tesla. Yes, I bought the stock and road it up and down (pardon the pun) and eventually got tired of the downward roller coaster.
Before I weighed selling, I considered at what average price point did I buy the stock and how low would it have to go before I would sell the stock? It hit that point, and it was time to sell.
Maybe at some future time, it will be low enough to once again purchase the stock, but only when one is convinced the company has a realistic plan for long-term profitability.
The same is true when selling a stock that is going up. Social media stock LinkedIn (NYSE: LNKD) recorded a blow-out quarter and the stock exceeded my prearranged sell price point. As Joseph Kennedy reportedly said: “Never apologize when taking a profit.”
And we should never worry about paying taxes on our profits; profits are taxable.
The point here is to follow your game plan and sell when it’s time. That’s a good thing, really.
What are some other signs that it is time to sell a stock?
- The Music Stopped: Once upon a time, Intel (e.g., microprocessors), Microsoft (e.g., software operating systems) and Cisco (e.g., Internet routers and switches) were literally rocking and rolling. We couldn’t get enough of these stocks until … the music stopped. The PC is yesterday’s news. The 1990s came and went. It became time to sell and move on.
- Commoditization: Just like Intel’s microprocessors became a commodity to serve as the brains of social, mobile and cloud, the same is true for all other semiconductors and those that build semiconductor manufacturing equipment and electronic design automation (EDA) software. Intel’s rumored takeover of Altera, similar to Avago’s absorption of LSI Corporation, are more signs of industry consolidation. If you have not sold already, it’s past time.
- High Volatility: Sometimes an investor can benefit from a highly volatile stock. A perfect example is Salesforce.com (NYSE: CRM). Lost track of how many times, yours truly has bought, sold, bought, sold, bought … this stock. As long as the trend line is consistently up, it’s okay to let go of the shares now and then, only to become reacquainted at a later date.
- New Management: Tim Cook is proving that there is life at Apple following the ultimate demise of Steve Jobs, but that is the exception not the rule. Companies change. Business plans shift. Circumstances change. Markets explode or implode. Almost DailyBrett has always followed the mantra that if the old boss or new boss is a bosshole, it’s time to pass on the stock or sell the stock. Translated: Stay away from Larry Ellison and Oracle (NASDAQ: ORCL)
- No Balance Between Fiduciary and Corporate Social Responsibility: The best run publicly traded companies do NOT see “doing well” and “doing good” as being mutually exclusive. Publicly traded companies with their brands under a digital 21st. Century microscope must appreciate their respective brands are trading in the cloud 24/7/365. Worshipping exclusively at the altar of fiduciary responsibility will no longer cut it. If so, it’s time to sell.
- Caca Happens: Planes land at the wrong airports (e.g., Southwest). Companies name shoes (e.g., Umbro) after the cyanide gas used in Nazi concentration camps. The CEO falls dead in the backseat of a car (e.g., Texas Instruments). Oil wells explode and gush on global video for three months (e.g., BP). Guano hits the fan. This is precisely the reason not to fall in love with any stock.
Sometimes, it is time to say goodbye.
Breaking up is hard to do.