What separates good investors from great ones? One of the most important things is the ability to recognize whether to hold or sell a stock when the story begins to change.
The biggest blunders I see come from people dumping stock because of sudden price movements up or down, usually from news about the company or a macro event affecting the whole market. It happened to my friend Charlie with Microsoft
The lesson I took from Charlie's experience is that if you're going to sell a relatively young, dynamic, and important company, you'll want to have some defensible reasons -- more than just, "The stock is down/up 25%, and I'm worried."
Microsoft is but one example; those who sold after early gains in Goldcorp
And so I noted it with interest when, a few weeks ago, the Motley Fool Global Gains team recommended selling Garmin
The competitive landscape has changed since the Garmin recommendation in early 2008. While there was always a fair amount of competition in the traditional consumer GPS space, things started to shift a bit once Apple
While that alone didn't seem insurmountable for Garmin, the launch of Google
According to the Global Gains sell report:
Navigator's impact on Garmin probably won't be immediate -- it's still a test product, and so far it's only available on Google's Android phone operating system. But as Navigator matures, the product will become better and will probably make its way onto other phones, including Apple's iPhone.
Short-term noise vs. long-term problems
So, Global Gains had some compelling reasons to sell that had nothing to do with short-term price swings or any other short-term noise. Instead, Garmin found itself on the wrong end of a technological shift in the industry, and that is affecting its long-term earnings power.
Since the sell call, the competitive walls have closed in further -- Nokia launched a free GPS offering in a number of its smartphones. Nokia owns Navteq, which licenses map technology to Garmin.
Garmin was recommended originally because of its strong growth prospects in Europe and other international markets. But this is a stalling growth story, and there's too much optimism built into the five-year forecast of 11.4% annualized growth.
When there's a dramatic shift in the competitive landscape just over the horizon, it's usually best not to wait until you get to the horizon to sell. And when your investing thesis changes this much, it's smart to move on.
The Global Gains team is committed to constantly evaluating their investing theses -- and moving on when it's time to do so. One of their current recommendations is Guangshen Railway, the dominant passenger and freight rail provider in China's most populous province. You can find out more about their thesis, as well as their top five stocks to buy now, with a no-obligation free trial to the service. It's good for the next 30 days. Click here to get started.
Things Fool analyst Rex Moore keeps hearing but has no clue about include Lady Gaga and Tila Tequila. He owns shares of Microsoft. Microsoft and Nokia are Motley Fool Inside Value picks. Green Mountain Coffee Roasters and Google are Rule Breakers recommendations. Apple is a Stock Advisor selection. Guangshen Railway is a Global Gains pick. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool has a feng shui disclosure policy.