How much time until you decide you;ve been rick rolled? a few quarters? a couple years? etc.
Are you talking about a single position that went against you? My philosophy there is sell when you’re proven wrong and the opportunity costs are better. You don’t have to earn it back the same way you lost it.
Took a bath on Air Canada earlier this year. Cringing to sell at a deep loss but the money was better allocated elsewhere. In fact, I used the proceeds to buy USCR (thanks BS) around $15ish. Trading at $27ish today (thanks again BS). AC’s about flat over the same time period.
For me the harder decision is knowing when to take profit and re balance. Hit a few home runs since March and sitting on sizable gains. Rule of thumb is to sell outperforms and buy under-performers. Easier said than done when you’re dealing with your own money.
winner is easy. i let them run. until i got losers to offset then i cut them in half when they reach 5% of net worth.
losers is hard. you obvi sell when you need money. or when you have better idea. but when do you actually give up on an original idea. how much time do you give them. i think for me im settling for 7 quarters. if they cant fix whatever is broken in 7. im out, and its 7 from the onset of hte problem. not from when i started holding.
also doyo uhave a pain threshold. like how much pain is too much pain. like down 50%, 60% , 70% etc etc.
I guess I’m saying the hold period is irrelevant for me. It comes down to fundamentals and if I believe there has been a structural shift in the company or industry. Air Canada for example was down somewhere in the 50% range and I just couldn’t see airlines fully recovering over the next year or two. To me that was dead money in interim and there were better opportunities elsewhere. Really its a case by case analysis.
Had another flyer (LSPD) that was down something ridiculous (>70%) during the March lows. I didn’t even think of selling… it wasn’t fundamentals or prospects of the company, just the market sold off and small caps got destroyed. It’s now tripled from the low and I’m kicking myself that I didn’t buy more.
7 quarters seems a bit arbitrary, unless you have a small cap bias and you’re constantly running into issues. If you like the business and the numbers / forecast, there’s really no reason to sell unless you think better returns can be found elsewhere.
i mean lets say they are saying they had cyclical weakness but this is a stock that has done well for the last 10 years this cycle. how long will you tolerate their underperformance. i think around 2 years. if their number sdont improve eps,fcf,rev, margins. im not talkin guidance either. then i sell out.
Banks are a good example in the current environment. They’ve had stellar performance over the past decade but now margins are squeezed razor thin. I have’t sold any bank or finance company (in fact added to Visa) because you just don’t know when the cycle ends. Those are power holdings for me and I’ll tolerate near term volatility for longer term stability. Generally they’ll offer lower beta (save for the current cycle).
But that goes back to re-balancing. If the stock has performed well for 10 years and you just rode the wave, you’re partly at fault for accepting the downside. Could have avoided that situation if you were periodically taking profits off the table and reallocating in other areas. I need to do a better job of this myself… maybe some sort of constitution that I have to follow, because otherwise greed will just force me to sit on gains and then grumble when they inevitably go through a cyclical decline.
what i mean is i dont mind a cyclical decline. i am talking of a secular change. where like monthly users have been falling for 2 years straight. and the co is still claiming a cyclical decline. think GE. i just cant be reallocating constantly. thats too much work. i cut in half if things are good. or i cut all the way if i think the co sucks. but i give them time to prove themselves. the key is what is a sufficient amount of time for these cos to fix a problem or adapt to a new environment.
Don’t take GE’s name in vain.
lol ok then disney. their profits bascially avaaportated cuz they trying new things. how long will you wait before yo u cut disney
Disney’s value IMO is in the asset base, so that is one I would be content to hold. I picked some Disney up in that basket of things in late March and sold it a few weeks ago when it got within about 20% of the highs and I just didn’t see the upside. But to a patient investor that likes quality, they strike me as a great position to add and hold through resolution. I think a vaccine and instantly all their problems go away.
but say 2023. no more corona by end of 2020. and their profits are still ■■■■. what do you do? there has to be a time clock for these companies.
Yeah I’m with Voyager, I don’t have a date on these things but its an evaluate as you go type thing. At some point yes I would abandon it, it is typically a combination of folding on a position and having a better idea that I need to fund.
Tough call right, if you think that things return to normal and Disney is back in the saddle than no reason to sell. But if you think there is a fundamental shift in human interaction and that Disney can no longer squeeze people in like sardines then it’s likely revenue estimates need to change along with its valuation. In those cases (Airlines included) I’m not hanging out to see how it plays out - save for short term volatility trades. Just my thought, obviously could be dead wrong but you have to make a call based on how you feel and trade accordingly.
some interesting quotes
Buffett: It breaks down into two periods of my life: when I had more ideas than money, I was constantly reviewing my portfolio, figuring out which stock to unload to buy a new one.
Today, I have more money than ideas so we aren’t really thinking of selling when the alternative is cash. But we’re always collecting information on every company we own – it is a continuous process, but not with the idea that daily, weekly or monthly activity will result.
If we needed money for a very big deal, $20-, $30- or $40-billion, and we had to sell $10 billion in equities, we’d use information we’ve been collecting daily to decide what to sell.
Munger: Even in Warren’s early days, he wasn’t thinking about his #1 choice [his single favorite stock] – he could put that aside [because he’d never sell it].
Buffett: We think about adding more to certain stocks and have done so. We add to ones that look attractive and that we can buy. If you look at the portfolio at the end of 2007 you’ll see that certain positions have been increased by billions of dollars. We like many of our positions and if they get cheap, we’ll buy more.
Buffett: We don’t—we sell plenty. If we lose confidence or conditions change, we sell. When in doubt, we keep holding. But for [our wholly-owned] companies, we hold and won’t sell unless a company promises to lose money indefinitely, or there’s a labor problem. We buy for keeps and won’t sell, even if the offer is for more than [the company is] worth. If we were wrong, we sell. Last year, I sold a couple of billion dollars’ worth of Johnson & Johnson just to raise cash for other purposes—an unusual situation. Someone asked us earlier what we’d do differently if we owned the whole company [Berkshire]. The answer is: nothing. We run Berkshire as if we owned 100%.
We want to buy something virtually forever. And we can’t find a lot of those. And back when I started, I had way more ideas than money so I was just constantly having to sell what was the least attractive stock in order to buy something I just discovered that looked even cheaper. But that is not our problem really now. So we hope we are buying businesses that we are just as happy holding five years from now as now. And if we ever found a huge acquisition, then maybe we would have to sell something. Maybe to make that acquisition but that would be a very pleasant problem to have.
We never buy something with a price target in mind. We never buy something at 30 saying if it goes to 40 we’ll sell it or 50 or 60 or 100. We just don’t do it that way. Anymore than when we buy a private business like See’s Candy for $25 million. We don’t ever say if we ever get an offer of $50 million for this business we will sell it. That is not the way to look at a business.
The way to look at a business is this going to keep producing more and more money over time? And if the answer to that is yes, you don’t need to ask any more questions.
Buffett: But the gradations in between are too tough. If you own great businesses, you should just hold on most of the time, maybe sell if the valuations get extremely high and buy more if they get really cheap like in the early 1970s.
Buffett: We’re at the lowest percentage of public holdings ever [relative to all of Berkshire’s assets], except for when we were winding down [in the early 1970s].
We’re not unhappy with our public holdings like Coke, Wells Fargo and Moody’s, but would we buy more? Well, we’re not, so there’s your answer. But due to taxes, the size of our positions, etc., we’re not selling either.
We’re not in an attractive time. Munger: It’s not a permanent state of affairs, but it’s not going away.
We will still put large amounts of money to work at good rates, whereas now we’re only able to invest small amounts – where small is still billions.
Do you agree with Philip Fisher’s two reasons to sell?
To sell the business is written in the ground rules. Never going to be a takeover or sell business because street thinks unfocused. I don’t quite agree with Fisher, think can ride some stocks forever.
[CM: Better off when you had 50 years ahead of you. Almost never sell operating businesses, and if we do, we do so because they can’t fix their problem.]
[BRK2005 - We won’t sell a business just because it’s underperforming.]
That’s basically what I’m saying. Buffett doesn’t have to trade anymore because they just buy whole companies and sit tight. It’s also the reason why you’d be just as well, or better off owning the S&P vs Berkshire over the past 10-20 years. He was active in the early days with less money, and it led to a far higher CAGR. It’s tough to do when you have a few hundred billion in the bank and you’re moving markets every time you trade.
My takeaway from that, unless you’re sitting on a mount Everest of cash, is that you sell when there are better opportunities elsewhere.