Today, I grudgingly sold 6 companies that I’ve owned for several years. All 6 companies had lost money for me. They were on an up trend at one point in time, with optimistic growth projections and a rising stock price. A few had healthy dividends as well so I was earning some income while expecting eventual stock price appreciation.
A while back, inflation started to kick-in. I’ve been investing for many years, but this was my first experience with rapid inflation. I read a lot and looked back at historical performance of growth and value stocks during inflationary periods. I held on to most of my positions.
Don’t Rush In
One of the things I do when I’m thinking about making a trade, whether it is a buy or a sell, is I create a spreadsheet with the companies I’d trade, the current stock price ,the amount of shares I’d trade. and my rationale. I don’t make the trade right away. In my experience buy and hold works better for me than trading. I often go back and revisit these trade ideas.
The 6 companies I ended up selling all made appearances in prior spreadsheets, and all were down even further since. Meaning I’d be better off if I sold. But these aren’t just stock tickers. I researched these companies. I know the name of the CEO. I believe in their growth story. Their balance sheets look pretty good, and there are analysts who rate them a “Buy”.
Is it likely that things will improve?
It’s a tough decision to sell. However, I noticed that while inflation was a big factor in these companies going down in value, the easing of inflation, or at least the perception that it is easing, had not caused the expected increase in price. And it seemed that at every quarterly earnings call, cost cutting results or growth acceleration were always a quarter or 2 away.
At some point, the company needs to make progress in its improvement plans, even if the market may not recognize those improvements with an increase in demand, and therefore an increase in stock price.
Is this the best place for my capital?
These reasons in themselves had not totally convinced me. So I started to think about whether I had a better idea for the capital I had invested in these companies. It hurts to be in the red, but what’s the outlook for the future? Putting the loss aside, do I think these companies will be market beaters from this point forward?
I did have a better idea. I expect a couple of the 6 companies will work things out and hit the company and stock price growth projections I had expected. I expect some will not and will decline, while some others will stay flat. As a group, however, I expect that the S&P 500 will beat them in the long term.
Sell, but watch and learn
So, I sold 6 companies, used the proceeds to invest in an S&P 500 index fund and created a new spreadsheet to track the results. It will be interesting to see what happens in 2 years. Where do I stand on this decision?
My investing research time and energy
The 3rd a final reason why I decided to pull the trigger is the outsized portion of my time that I was investing in looking into 6 companies that were a relatively small portion of my portfolio. While this is a hobby and I enjoy the reading I do, a successful investor maximizes the time spent by focusing on the largest opportunities. These 6 were not my largest opportunities and were taking energy and focus from other companies in which I held much larger positions and which have much greater potential.
Moving on
It’s done, I’ve made the trades, I’ve created my spreadsheet and I’ve moved on. We’ll see how this works out. I’m still haunted by a sell of Intel corp that I made last year. It had been steadily declining in price and management had been making excuses on earnings calls. When they cut their dividend, that was the last straw and I sold all my shares. That was 1 year ago. Intel is up over 55% since.
All investors make good decisions and bad decisions. It’s important to keep score and analyze those decisions and the results of those decisions so that you learn to make better decisions in the future. I was reading a book about a wall street trader. He said that at his firm you got no credit for a trade that made huge profits. You had to be able to explain why the trade won big so that it was repeatable.
Was my decision the right one? We may get an indication in a few years, but we really won’t know until I need to sell those S&P 500 fund shares. That could be 20 years from now. I hope I can still find that spreadsheet.
*Update April 3, 2024
It’s been a little over 2 months since I sold these six stocks. 2 are down since I sold and 4 are up. The S&P 500 fund I bought is up almost 8%, so I’m ahead about 3% on the overall transaction. I’ll keep an eye on these and update periodically.