Tuesday, May 09, 2006
Dell is puking down today based on news last night after the close. I used to own this stock for clients. I doubt my reasons for owning were unique in any way.
I sold half the position last October at $32.07 as part of a small get defensive trade I made. I sold the balance in January at $29.96. The second trade was me throwing in the towel.
The stock had gone down a lot before I sold but it got to the point where I knew I was wrong about the company's ability to swim upstream against the other big tech companies.
It is human nature to struggle with taking losses. I have trained myself to focus on what I think will happen to a stock not whether I am up or down. Up or down is more about where a stock has been which is precisely the wrong thing to do, strategically.
This all ties into the idea of being wrong. You will get certain picks wrong. There is no avoiding being wrong. A balanced portfolio should minimize the consequence of when you are wrong. I turned out to be wrong for being in the name but was right (for now) in selling when I did.
If you own stocks that you think you should give up on, you are probably right. One word of caution, if Dell's price action was not worse than the rest of the sector it might have been a different story. If a sector is down 20% (that is rare of course) and a stock you own within that sector is down the same 20% I'm not so sure it is a sell. No matter how poorly a sector does I am not going to be zero weight. Hopefully I would already be underweight a sector down that much before it dropped that much.
Posted by Roger Nusbaum at 6:06 AM