Buying a stock is easy. Even a talking baby on television can apparently do it.
Selling, on the other hand, is the truly underappreciated art of investing.
How often do you find yourself clinging to a loser? Haven't we all gotten too greedy at times, holding on to our winners even after their fundamentals sputter?
Nobody is perfect. You're not going to buy every stock at the bottom. You're certainly not going to sell every stock at the top. However, if you're not spending as much time on your sell decisions as you are on your equity purchases, you're really just half an investor.
Unfortunately, it may not even be your better half.
Make yourself whole
I've been part of the Rule Breakers analyst team since the growth stock newsletter's inception nearly five years ago. New subscribers are naturally drawn to the active recommendations on our scorecard. I can't blame them. It's a hotbed of fast-growing companies that are reinventing their industries.
What new readers don't always catch is that there are more than two dozen slashes on the scorecard, indicating stocks that fell out of favor. We may have been pumped about the stocks at one point, but things happened to earn them their place as sell recommendations.
Let's go over a few:
|
Company |
Sold |
Sold Price |
Gain/Loss Since |
|---|---|---|---|
|
Overstock.com |
2/15/06 |
$25.23 |
(62%) |
|
Great Wolf Resorts |
7/28/05 |
$13.65 |
(85%) |
|
XM Satellite Radio |
11/15/06 |
$14.85 |
(97%)* |
|
Playboy |
8/20/08 |
$4.32 |
(54%) |
*XM loss is adjusted for merger with Sirius, where XM investors received 4.6 shares of the new company.
We spared subscribers a lot of heartache by nudging them out the door on these stocks. What did we see?
- David Gardner grew concerned when Overstock CEO Patrick Byrne quipped that he had been "trying to get fired for six years." The company's sloppy fiscal performance didn't help, either.
- I threw in the flag on Great Wolf when the resort chain warned that it would come up short during the summer. If a family magnet can't succeed during the summer, it's got problems.
- We bailed on XM with help from our community's input. The satellite radio operator was losing market share to rival Sirius. Even with the successful merger of Sirius XM Radio
(NASDAQ:SIRI) , it is still far away from profitability with its bloated cost structure. - Playboy is a recent dismissal. The brand took a hit last year, as faltering licensing revenue finally caught up with fading print circulation.
Learning from your past
History repeats, but so does misery. The reason investors miss the eventual implosions in their own portfolios is because they are often too emotionally attached to take an unbiased view.
It happens. I own shares in DreamWorks Animation
Look for the catalysts that can kick the fundamentals in the gut. Are key executives leaving? Is the company making desperate moves that don't make sense on the surface, like when India's Satyam
The biggest key in separating stock picks from stock flicks -- and I urge you to do this with every stock you own -- is to revisit your buy thesis.
Why did you buy a certain stock? Have the prospects changed? A truly great stock, like active Rule Breakers recommendation Google
It's OK to be an optimist. We're all optimists when we buy a stock. However, you are only cheating yourself if you don't let your inner pessimist out long enough to crunch the numbers and try on the binoculars.
You're probably a pretty good stock picker. It's time to be an even better stock flicker.
Join me and my fellow subscribers in sniffing out the next wave of market-thumping disruptors and bailing on those that don't pan out. I invite you to check out Motley Fool Rule Breakers free for the next 30 days, to see if it's the right newsletter for you.
Longtime Fool contributor Rick Munarriz is a fan of disruptive growth stocks. He owns shares in DreamWorks Animation. Google is a Rule Breakers pick. DreamWorks Animation is a Stock Advisor recommendation. The Fool has a disclosure policy.
