I agree that you should sell when your gut tells you you have a loser. I bought VANS at 16.25, expecting it to hit 25 in 1998. Immediately thereafter, it fell to 14 on mediocre earnings. I got out and put my money in CMGI, which is up 45% since then, making back my money and more. VANS, of course, fell to 8 on across-the-board downgrades when its Japanese distributor went bankrupt.
I still like VANS long-term, and now I can get in for half of what I first paid. Of course, I could have had a buy-and-hold strategy, and eventually, perhaps a year from now, I might have recovered my losses. But sometimes, when your nose is telling you it smells bad news, it pays to listen. I saw limp earnings from VANS at a time when it should have been booming -- something was wrong.
On the other hand, when I feel a downturn is driven by hype, as opposed to fundamentals, I'll hold. Stocks I'm holding despite their losing value since I bought them: LTBG (I tripled down on the dip, which was due to a billing error despite otherwise increasing revenue); ACRT (manipulated by shorts despite great earnings); and TRMB (lowered earnings when it had to fill a low-margin military contract ahead of high-margin private contracts).
I guess my rule is: Only sell when the reason you originally decided to invest in the company no longer seems valid.
Justin |
