How's your portfolio doing? In this episode of Market Foolery, host Chris Hill chats with Motley Fool analyst Ron Gross about midyear investment checkups. Tune in to learn a few big numbers to watch in your portfolio, what to do with oversized positions, when to sell a loser of a stock, why you should have a watch list, some metrics to check before buying for the long term, and more. Plus, answers to some burning listener questions. Where can you find trustworthy and reliable company info -- besides The Motley Fool, of course? How and when should a long-term investor cash out a stock? And how long does "long-term" really mean, anyway? Find out below.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on July 1, 2019.

Chris Hill: It's Monday, July 1st. Welcome to Market Foolery! I'm Chris Hill. Joining me in studio today, the one and only Ron Gross. Thanks for being here!

Ron Gross: Always a pleasure, Chris, literally!

Hill: As I mentioned last week, two things. This is going to be a short week for Market Foolery because we have the holiday coming up. So, just an episode today and tomorrow.

Gross: Big July 4th coming up!

Hill: Yeah. And I'm not here.

Gross: Literally.

Hill: Hopefully, by the time you're hearing this, I'm already on Cape Cod.

Gross: Are you enjoying yourself, do you think?

Hill: Hopefully! [laughs] Fingers crossed. We're taping this a little early. But I wanted to get you in here because this really seems like a good natural break for any investor. We're at the halfway point of 2019. We're going to dip into the Fool mailbag, because we got some great questions. But I am curious, this does seem like a good time for any investor to take a step back and say, "OK, it's the midway point. How am I doing?" Almost, to the extent it's possible, look at your portfolio with a fresh set of eyes.

Gross: I like to do that two times a year. Now, because I'm an investing nerd, I do it daily. But I don't recommend that to the average person. But, two times a year is a really nice time. You can step back, take a look at your portfolio. You just need to see a few things. Sometimes, for example, cash can have accumulated. For example, I put a piece of my 401(k) into cash every month, and then I deploy it. But sometimes I forget, and the cash can build up. You don't want cash sitting idle unless that's a strategy that you're particularly pursuing. You want to keep an eye on your cash balance. You want to see if any positions have become oversized. First of all, it's a good problem to have. It probably means something is skyrocketing to the moon and it's just killing it. But you may be unhappy with how big that has become as part of your portfolio, the allocation size. And perhaps it's time to pare back.

A third thing is, perhaps you've been hanging on to a loser a little bit too long in the hopes that it would come back. Hope is a bad strategy when it comes to investing. You have to have a good reason, a good rationale. We always suggest writing down your investment thesis. In the case of a loser that you're really unhappy with, it's always good to go back and revisit your investment thesis if you have written it down.

Those three things. Maybe a company has become too large, maybe a company is not turning around as hoped, or maybe cash is accumulating. Two times a year, perfect.

Hill: Two of those things, I think, tie nicely into something we talk about from time to time, which is having a watch list. It's great to have a portfolio diversified with a bunch of stocks, but you also want to have a few stocks that are on a watch list so that if the cash balance builds up, or you do look at something and say, "You know what? I've looked back at why I bought this company. The thesis is broken. I'm going to get rid of this," maybe you time the sale, if it's at a loss, you time it to be advantageous from a tax position. But yeah, that's really why you want to have a watch list.

Gross: I love that idea, for sure! And don't take your watch list for granted. If you put a company on your watch list a year, two years ago, don't just assume nothing has changed. Give it a once-over twice to make sure that you still like that company and your thesis, whatever it is, still holds.

I always have a watch list. I'm always hoping to buy that next thing and having enough cash to buy that next stock, or, as you said, maybe selling something and replacing it with something better. The idea being, you always want to have your favorite stocks in your portfolio at any given time. This is the perfect time to make sure that's the case.

Hill: What is the first number you look at when you're looking at a company? Let's put aside the stock price. You can't help but see that number when you type in a ticker. For me, it's the market cap. That is the first thing I look at, because one of the ways I think about investing for the long haul is, what is the market cap today, what do I think it can be, particularly relative to competition. So, for me, it's market cap. What is it for you?

Gross: Market cap is definitely top few things. I can look at a glance of a tear sheet and look at a few things like, boom, right? Is the company profitable? Is there net income? Even more importantly, I'll look at a cash flow metric like EBITDA. Are they producing cash flow? What's the market cap? What size of a company are we talking about here? So, perhaps what's the revenue number look like? Those three things right there can tell you a lot about a company.

Hill: Before we get into the mailbag, looking ahead to the second half of the year, is there anything in particular you're going to be watching -- whether it's an industry, a particular company? Anything?

Gross: This may not be satisfying to many listeners because it gets a little bit in the economic weeds, but macro is what I'll be looking at, for the second half of this year, specifically interest rates and GDP or economic growth. That's going to tell me a lot about what I need to know about individual companies and how their growth rates are looking, and if, God forbid, we're going to fall back into a recession, which does happen. Sometime, we will. But, how's that all looking? Alongside that, how's the trade war situation shaping up? Six months from now, are we going to look back and say, "Wow, this has been a real thing!" or will we say, "That was just a blip, and it's gone"? So, mostly macro things for me.

Hill: Our email address is [email protected]. Question from Ryan Merkel, Staten Island, New York. Ryan writes, "I'm a new investor, love the podcast and the services you provide through Stock Advisor and Rule Breakers. With the market doing really well since Christmas Eve, 2018, a trade war hovering over us, slowdown in the economy, and in my opinion, an uncertain future economy, is it a good time to take some profit? I've heard that once you hit 15% profit, you should take some off the table. I'm a long-term investor, but what does the term long-term really mean? Any guidance would be greatly appreciated."

I'm curious about the number he wrote. You hear all manner of things, but I've heard investors say, "If I make 50% profit," or -- this is my father in law's move, and it's worked out well for him, I should say -- if he doubles his money with a stock, he'll sell half and roll with the rest and redeploy the cash in another way. Do you have any guidelines that you live by? I know you're a valuation guy.

Gross: Yeah, that's what I live and die by, so I don't have a standard number. A company could go up 15%, but have another 100% to go over the next five years. I want to be all in there, I don't want to start paring it back. So, for me, it's looking at each individual company and assessing, is this too big of a position, is the valuation stretched such that I probably won't earn the rate of return that I want to earn, especially relative to the market? And if that happens, then I'll pare back. But there's no standard like, "Oh, 15%, time to peel back." That's just not how I think about stocks.

Hill: In terms of long-term investing -- to Ryan's question -- how do you think about "long-term"? I think in general here at The Motley Fool, we define "long-term" in a much longer time horizon than, say, the average person on Wall Street does.

Gross: I literally think about it as forever, except maybe retirement, things will change, and I'll have to change my allocation from an equity bond perspective or an equity cash perspective. But, for really long periods of time. That doesn't mean I'm going to hold every single company for really long periods of time. But I'm going to remain almost fully invested for really long periods of time, and I'm not going to try to time the market and move to cash in any significant way. There are certain times where I feel things are stretched where I'll be more in cash than others. But I'm not pulling money in and out of the market. Statistics show that if you're not in the market for the best five days of any given period of time -- a year, 2 years, 5, or 10 -- you underperform unbelievably versus if you had stayed in investing. And that's only if you missed five days or so. So, I'm happy to take the ebbs and flows of the market and live through them, not try to be smarter than the market. Try to buy good companies, make good investments, but not try to be smarter than the market. Just hold on for literally decades.

Hill: Particularly if you're a new investor, like Ryan, and you're younger, it can be a little hard when you're starting out to think in terms of 10 years, 20 years, that sort of thing. But really, overwhelmingly, that's how younger investors should -- I don't know how old Ryan is, but I'm going to make the safe assumption he's younger than you and me.

Gross: [laughs] Most people are. Agreed. The only thing you have to worry about, in my opinion, is to make sure that you don't have cash in the market that you're going to need over the next two or three years. If you do that, then you can stay invested, and even if the market tanks like it did in 2008 and 2009, you can stay patient, perhaps invest more money if you have it, but just stay patient, don't pull money out, because you don't need that money. It's going to come back. It historically always has.

Hill: That's a great point! I was thinking of last week, when Dan Kline was here in the studio, we were talking about the Caesars-Eldorado merger. Dan was very clear about saying he really likes the deal and he really thinks it's going to pay off 10 years down the line. He was basically like, "Yeah, I think this is a great deal!" He ticked off all the reasons he thought it made sense. And in the next breath, he said, "The next couple of years, that's not going to show up. They're going to be spending money. They'll have to do all the things that come with a merger, including rebranding, etc. But 5, 10 years down the line, I really love this deal!"

Gross: That's awesome! I love that kind of thinking! The only caveat there is, over a 10-year period of time, its total rate of return would have to be equal to or better than the opportunity cost of what I could have put the money into elsewhere. So, it's going to have to earn me whatever it is, 8% to 10%, on average for that 10 year period, so that when I look back at it and say, "OK, that was a great investment!" If it's only earned me 20% over that 10-year period, it was probably a mistake.

Hill: Question from Caroline Smith, who writes, "I've heard folks on your podcast mention how Wall Street has an inherent conflict of interest when the issue analyst reports and price targets for stocks. Where should I go to get information I can really trust when I'm doing research -- outside of The Motley Fool, that is. Thanks very much."

Great question! I'm reminded of a phrase that I always associate with our friend and colleague, Uncle Joe Magyer, when he talks about, not necessarily Wall Street analysts, but company executives, as he puts it, talking their own book. You would expect the CEO of any company to talk up their business. It's not to say that analysts on Wall Street are being disingenuous when they say, "This is why I like this company. This is why I don't like this company." But, yeah, there are absolutely conflicts of interest when analysts from Wall Street Firm X is saying, "I love this stock!" Meanwhile, the analysts on the sell side are pushing the stock as well.

Anyway, to the question that Caroline posed, where do you go for research?

Gross: I personally go directly to the company documents and do my own research. That's easy for me to say. That's what I do all day long. If you're someone who wants someone else's opinion, and you don't want to go to the primary documents and do your own work, I always start with a straight-out Google. Just start googling the company. You'll find articles, whether it's Forbes, Fortune, The Wall Street Journal, from folks that don't have a conflict. They're either analysts, or even financial authors from the financial press, and they will give you thoughts and opinions. Even if it's not opinion, at least it will be facts about how a company is doing.

Obviously, The Fool, as the question says, but we do have competitors that don't have conflicts. I'll throw out one because I'm not in the business of helping our competitors. But Morningstar is a company that we trust around here to look at a research report and to get advice that is not conflicted. It's not free, it's expensive, and not everybody wants to pay for that level of research. But there are some folks out there that do independent research. And those are the folks that are typically not associated with an investment bank.

Hill: I'll just add that if it's an industry that you're particularly interested in, the trade media beyond The Wall Street Journals and Fortune, Forbes, etc. If you start digging into what trade media covering a given industry are writing about, you can really get into stuff that's never going to see the light of day in The Wall Street Journal. For me, it's always enlightening to look at the restaurant trade publications. You almost hear about stuff before it makes its way to the mainstream media.

Gross: Excellent point! In fact, a lot of the trade media is free because it's advertising supported. So, you could get your hands on a lot -- whether it's telecom, food, restaurants, lots of different industries -- a lot more information than you would think you could, for free.

Hill: Last thing before we wrap up: fireworks. You're a fan of fireworks, aren't you?

Gross: Sure!

Hill: I'm looking ahead to later in the week. Do you have one that stands out? Did you ever go to New York City, like, "I'm getting the fireworks that are over the Statue of Liberty"? Do you ever do that?

Gross: The Macy's fireworks display was always -- I'm a New Yorker, so growing up ... I wouldn't necessarily head down to the city to see it, but, always, sitting in front of the TV, I remember as a kid lots of times focusing on what Macy's had to offer. You?

Hill: Not quite as big as that in Maine when I was growing up. [laughs] But, fireworks...

Gross: It's fun!

Hill: Always fun! Anytime you can be elevated, anytime you get the opportunity -- even if you're a few floors up in an apartment building, it makes a nice difference. I've actually come over here to Fool headquarters a few times. You go to the fifth-floor balcony -- assuming it's not cloudy or anything like that -- you get a nice view, not of the ones over the Mall in D.C., but over in Maryland, all over the place.

Gross: Awesome!

Hill: Who doesn't love fireworks?

Gross: Exactly!

Hill: Ron Gross, always good talking to you!

Gross: Thank you, Chris!

Hill: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of Market Foolery! The show is mixed by the newly married Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you tomorrow!