I'm a schmuck.
I probably spend about 99% of my due diligence on finding companies worth buying. That doesn't leave a whole lot of time to devote to stocks that I already own and are worth selling.
It doesn't make sense. It's like learning how to take off and fly a plane without brushing up on how to land. And I'm probably not alone.
I blame Hollywood, of course. Why not? Romantic comedies emphasize two lovelorn strangers coming together, but there really isn't much of a market for films about eventual breakups. Where art thou, Annie Hall?
Walk a red mile in my blue suede shoes
I don't have to go too far into my portfolio before I stumble. For example, I bought shares of MIVA
There was a time when Overture and MIVA were the only two profitable players in this very promising niche. I was right about the market; I was just wrong about MIVA. Eventually, the company's fundamentals began to come undone like a raggedy sweater. The quality of some of its sponsors was suspect. The company decided to stop reporting its quarterly metric of earnings per click. It just wasn't growing as briskly as the competition.
The warning signs were there, but I ignored them. I preferred to lean back on my initial hunch, even though the entire foundation had changed. I cashed out. I took a bath on MIVA and still came out feeling dirty.
A similar thing happened to me more recently with Great Wolf Resorts
Unlike my earlier picks for the newsletter, however, this one flopped in a hurry. The company warned that it would miss its guidance. Then it warned that it would miss it again. It had to sell a stake in its two original resorts to bankroll future construction.
I smelled the stink quickly enough to realize that this was not an "ultimate growth stock," so subscribers were told to bail. I should have followed suit. Instead, I held on to my shares in hopes that maybe this would work as a real estate value play. That hasn't worked out either: The stock has since shed another 30% in value.
The dip that refreshes
"I won't sell" are many an investor's famous last words. There's no glory in going down with the ship if you are little more than a stowaway. But I'm not saying you should be a frenetic trader, either. The "buy and hold" philosophy is time-tested and true, but that assumes you're buying the right stocks and not overreacting to the Chicken Little chatter that ultimately proves hollow.
I am certainly glad that I held on to Netflix
This doesn't mean a sharp market-crusher like David doesn't forget to sell sometimes. He recommended the purchase of Krispy Kreme
David's hits and misses are available to all Stock Advisor subscribers, and you can even check the recommendations out for free with a month-long trial if you're still undecided. The point is that some stocks bounce back, while others don't.
Sell the eggs, buy the tennis balls
What came first, the tennis ball or the egg? A mutual fund company used to market the fact that its fund managers bought tennis balls over eggs. Tennis balls bounce back after they hit the ground. Eggs? Well, they go splat and can make a pretty good omelet -- at best -- if they fall.
A company like Apple Computer
Hollywood's romantic comedies take you from the first date to the altar, but the relationship doesn't end there. You need to allow time to get to know your stocks a little better and take an unbiased view of all of the changes that take place. Needs change. Priorities reshuffle. Seasoned lovers drift apart because of irreconcilable differences.
Dull and depressing movie? For sure, but it's the key to brilliant and "happily ever after" investing.
Longtime Fool contributor Rick Munarriz has seen a few of those dull and depressing movies lurking in his portfolio over the years. He does own shares in Netflix and Great Wolf Resorts. T he Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.