This is probably the toughest question an investor must answer: How long do I hold my stock?
When you are making a paper profit, feel that you have selected the right stock and want to keep it. You certainly don’t want to cash out your 10%-20% profit and realize that your stock will do as well as MCD for the past 10 years!
On the other hand, when you are have a paper loss, feel that you have selected the right stock and you want to keep it… Wait, I just wrote the same thing twice, right? Ah! That’s because regardless if you are making money or not, when you bought the stock, you thought that you would be making profit on it! It hurts to see that you haven’t made the right decision. It hurts your wallet but also your investor ego. As long as you are holding your positions, you may ignore the paper loss thinking it is just a rough moment. You close your eyes and pray for good news.
This is Where I Am Right Now
I recently updated my dividend holdings. You’ll see 3 things if you look at it:
#1 I’ve sold my Covered Call ETF and replaced it by Seagate Technologies (STX).
#2 I still own shares of 1 non-paying dividend stock: 5N Plus (VNP).
#3 My position in VNP is hurting my portfolio very bad (the stock is down 75% in the past 12 months).
Should I hold this stock? Or should I sell it? This is where I am right now… tough decision.
Trying to Rationalize my Decision
I have been investing since 2003. I’ve had some great trades (after all, I bought my first house with the proceeds of my leveraged portfolio!) and I’ve had my share of bad moments too. But for some reason, selling a stock is not getting any easier with time!
When I bought VNP, the company was liquid and making great profits. I believed (and still do) that solar energy is part of the answer to long term energy consumption. Then, they bought a European company five times bigger than themselves. At that time, it was a great move since they were diversifying their activities and sources of revenues. Prior to this transaction, they had one client (First Solar) generating 80% of their revenues. At one point, I even thought I would cash out a nice gain since VNP would be most likely bought by First Solar. But this never happened and VNP suffered greatly from the European recession. The company they bought was operating on that continent only.
They declared their first quarterly loss this year. This was a big shock to the stock value. Then, when they were heading into the black again, they hurt their stock again by issuing more shares. So the fundamental reason why I bought this stock (their leader position in their market and the potential of solar energy) are still there. But new information is coming into play (higher level of debt, European recession).
On the other hand, I’ve already passed through the point of no return; I have an average cost of $6.84 and the stock worth $2 right now. I think I’ve lost what has to be lost in this case. I’m tempted to sell the stock and move one but I still believe there is a chance to get more money for my shares. Selling during a volatile market doubled by a recession in the company’s main market is not clever. This is why I will hold my position for now.
The only thing that frustrates me is that this is my only big loss. The rest of my portfolio is doing pretty well but VNP is erasing all my profit… and even takes my account into the red this year!
What would you do if you were me? How do you handle the selling part of your portfolio?
I agree with your course of action with this. I can’t really elaborate on it more effectively than you already have. Good luck with this one.
So, if someone gave you a thousand bucks, on condition you need to invest it – and you didn’t own it already, would you buy this stock.
If I owned RIM and had a loss, I’d sell because it’s going no where but down. I don’t follow the stock you are discussing, but I’m not keen on the sector. With the downward pressure on fossil fuels, it makes it harder to justify the cost of solar/wind etc.
If it’s a material position, and not just “mad” money, why ride it out. Why not sell now, and when this market hits bottom get a great deal on something with some upside? It doesn’t seem to fit with your strategy. Admit that you picked a bad one here – don’t beat yourself up – but move on. With the pressure on this market the weak stocks are going to get hammer hardest.
Ok, I’m going to quote a common peice of advice, and then I’m going to tell you why that’s the wrong thing to do in this case.
Lots of very smart investors will say that the right time to sell a stock is when the reason you bought it in the first place isn’t true anymore.
Don’t do that. The fundamentals of this company have changed, that doesn’t mean it’s a bad investment. What you need to do now is revalue it. Be honest with yourself, do you understand the business well enough to say that it has a fighting chance of returning to profitability? Measure the current assets, measure the debt levels, what would this business be worth if there was absolutely zero growth?
If you have the understanding of how to do all of those things, and you are honest with yourself and think this company is worth what it is selling for, then you buy more. Cost average it out, double, triple your holdings, because you will know what the market does not. At some price, every business has value. Every business is a bargain and a ripoff at some value.
But if you can’t say with some degree of certainty, with the “margin of safety”, then let it go.
I was just wondering why you had such a disproportionate number of that stock in particular? I have a rule where no matter how good it feels i don’t want a stock to ever go above 3% to a max of 5% of my entire portfolio. It means you may have to wind up with 30 stocks (or other products) but I feel it’s worth it.
You might kick yourself when you see a stock double but you really protect yourself as well and the hit is less. Don’t get too greedy you never know what can happen.
Great advises guys!
@Steve,
The oil price is evolving rapidly. If the oil barrel goes back up to $120 next year, we will be talking about solar and wind energy again. Since this stock is in my retirement account, I don’t need it for the next 30 years.
@Matthew,
You are right, I should revalue the stock with current fundamentals.
@Paul,
I was trying to hit a homerun… I was wrong! The worst part is that I averaged down my cost and was in a position of paper profit 3 weeks after. I should have sold it then! Everything was pointing back in the right direction last August. That wasn’t so long ago 🙁
I want to keep every stock I hold now forever. I would like to never sell any stock I buy. Everything I buy has a dividend and right now I have bought only bought companies I believe will be around a profitable for as long as I need them to.
One point that caught my attention is that you are speculating on ‘solar power’ without phrasing it that way. What percentage does solar power represent in terms of energy in the world? I am not saying it’s not the way to go for the future … Remember the days when Ballard Power was trading high because of their fuel cell … It lacked the serious business model and the cost of fuel cells is still really high.
Anyways, I don’t know the details of the company but what caught my attention was that you wrote “the potential of solar energy”. Potential sounds like gambling … You also need to assess your opportunity loss while you hold it.
I like Steve’s comment. If you wouldn’t buy it now, why keep it?
However if they are the big fish in solar power in Europe, and if the Eurozone can come out of this crisis and assuming oil prices go back up then you should be in a good position.
That’s a lot of ifs though.
Wow, this sounds like my experience with Brightpoint (CELL), my only non-dividend stock. Looked good when I bought it, missed it’s earnings, lost 45% of value. It’s been the biggest dog in my portfolio. Fortunately it’s been on the upswing a bit lately, I’m still down around 27%. I violated my mission statement I had set for myself when I started trading stocks and suffered. Since it represents less than 5% of my investments, I am hanging on to it at least through the next couple of quarters. It is a tech company and there is a future for it. I have friends that tell me to sell and re-invest. But if I don’t HAVE to sell at a loss, I’m not going to. I feel there is a place for patience in the market. However, your circumstances and goals are unique and ultimately, what I do could be totally worthless to your situation. Good luck!
And my patience pays off. Ingram to buy Brightpoint at $9.00. Christmas on 2 July. Maybe if I post/complain about my other current “dogs” more miracles will happen!