Post of the Day
February 29, 2000
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When to sell JDSU
A very interesting phenomenon occurs on these boards. I've noticed that when a particular stock is tanking hordes of people ask feverishly, "should I sell and cut my losses." Usually these posts are answered with a chorus of, "its a buying opportunity" and "its PE is less than US Steel." posts. OTOH when a stock, such as JDS Uniphase, has risen rapidly one commonly sees posts asking if one should sell and take profits. The answers on the company board mainly consist of paraphrases of, "hell no I wouldn't let you pry it out of my cold dead hands...." and the like. But we rarely address when one SHOULD sell a stock such as JDSU.
I would suggest that everyone interested in long term growth stocks read Philip Fisher's "Common Stocks Uncommon Profits." His commentary on growth investing is as relevant to todays fiberoptic and biotech companies as it was to the organic chemistry and electronics companies he favored in the late 50s. He devotes a whole chapter to the topic of when to sell and concludes that the time to sell a well picked growth stock is "almost never." He points out and I whole heartedly agree that there are a few excellent reasons to sell.
One reason to sell would be that you need the money for something else. Since few of us are investing for the sole pleasure of watching our stocks go up I think this may be the most important reason. If you have immediate needs or don't have enough cash to cover the next five years of forseeable expenses you probably should sell some stocks. Which one's? Probably the ones least likely to show significant gains during your investment horizon.
Another reason that Fisher gives to sell is that the initial investment in a company was a mistake. I doubt anyone will be able to convince me that JDSU stock was a poor choice, but occasionally we buy things thinking they are something they are not. Its best to get out early in this case. Fisher points out that a great deal of money is lost by investors who fail to admit a mistake and change course early. Once again I can't see any reason to believe investing in JDSU was a mistake.
A related reason to sell is if the company changes such that the reasons you initially bought are no longer valid. Since I bought JDSU based on excellent management, an industry sector with spectacular prospects, a company with no debt and a fantastic rate of growth, I see little reason to sell on this ground. Since the company is much the same as when I bought it, I'll assume that its long term prospects remain the same as when I initially researched it.
The most difficult reason to sell would be that one thinks that one has a better investment opportunity whose growth rate will exceed that of the stock one is selling. Fisher points out that it is difficult to know a company you just started looking into as well as one you have been following for years that one is often on shaky ground making this judgement. But hey gang if y'all see a BETTER opportunity for growth at acceptable risk than JDSU by all means sell JDSU. I just don't see a company clearly better positioned for the next decade.
A POOR reason to sell would be to take profits just because the stock price rose. Statistically speaking companies that are growing are more likely to keep growing and stock prices that have gone up are more likely to rise. Fisher points out that the worst mistake investors make is selling a long term winner early to "take profits." Most of the time the money ends up investing in something that lags the initial investment by a substaintial margin.
I guess I could have reitterated the sentiment, "Just Don't Sell Uniphase" but I thought I'd try to back it up a bit. -MarkV
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