We all know that emotions get in the way of investing. Sometimes we hold on to a stock too long because we like it so much or we sell too soon because we give up on the thesis if the stock drops a buck or two right after buying in.Whether due to emotions or not I have obviously sold too soon or too late in the past and will do so in the future. All that can be done is to do your best. I love Starbucks (SBUX), held onto it until this summer. I disclosed selling it in the mid $26s.
I could have sold it earlier in the $30s or I could still be sitting on it at around $20. The point is like most sales it could have been better or worse.
On Tuesday I sold a financial stock that I like and just like Starbucks this new sale could have been better or worse (the stock is obviously way off its high but it has bounced some off of its low too). The sale was not a tactical reduction of exposure, I will be buying a replacement for it today or tomorrow keeping the same net exposure. That the stock is down is not a big problem as most bank stocks are down, the more important decision to be underweight the sector was made ages ago.
The impetus for the sale was more of a top down decision about wanting to reduce, not zero out however, my exposure to this specific country.
I'll disclose the name a little later but for now I'll say that I think very highly of the company and might by it back later but for now the immediate prospects, or more correctly my perception of them, have to be the overriding factor.
It is important to recognize when you have an attachment to a stock, overcome that hang up and be willing to do what is best for the portfolio. There are plenty of reasons why selling at the top is a rare thing and this is just one of them.
As selling at the very top and the very bottom are both unlikely I would say to just focus on having some sort of discipline, analysis or both.
17 comments:
Hey Roger,
Looks like you found yourself in someone's crosshairs
http://www.billakanodoodahs.com/2007/12/benefits-of-diversification/
A little classless IMO to include the comment about "rarely reads" (what's the point of that remark other then a dig).
Frankly, I think it is the author of that blog that is "missing the boat" in terms of the why on being diversified across multiple asset classes. There is so much flawed analysis in that post I'm not sure where to begin, but not worth the time.
Not sure what is so complicated about understanding that a full cycle means both a bull and bear market in stocks. I think some must believe bear markets will never happen again.
I think this bull market since 2002has given birth to alot of bull market geniuses. It will be interesting to see how their portfolios perform during a stock bear market.
thanks for the heads up.
what i know about bill, which is not much, is he views most things differently than i do.
really though i would just say "insert shoulder shrug."
Roger, I infer that your top down methodology doesn't set specific price targets for your holdings?
As a dividend investor, I try to buy when prices are down and yields are up, but it's tough to pull the trigger when everyone else is fleeing a sector/stock. Your admonition to think long term is reassuring. Thanks.
that is pretty much right.
there are several reasons for me to sell. if i turn out to be wrong one way or another and i think SBUX was one of those. I disclosed shaving down a little CVRD (RIO) to rebalance earlier this summer. If I find a better proxy for something than what I am using now. If I think a stock is a proxy for something and it isn't. If I am making a sector change. the trade yesterday is a change in country weightings.
A stock may no longer be the best proxy because it has gone up by some amount but I don't often buy a stock at $20 planning to sell at $30 or whatever but every once in a while I have taken quick trades.
anything is on the table but I think you have the idea.
I appreciate the caveats about using stop loss
with thinly traded ETF's. It is still a bit muddy as
far as setting a level to sell (at profit or loss), but I like your idea, Roger, of selling portions of a position rather than all at once. If I might ask, is that how youexited the SBUX and bank position you mentioned?
As far as emotional investing, I will cop to being one. When I worked in the public sector, we had three choices...stocks, bonds, and Govt. securities. We could choose the percentages, and changes couldonly be done 3-4 times a year. There was not much freedom, but it was amazing how much less
I worried about the portfolio, and how much better
I did, in general, than trying to tweak and adjust daily. Similarly, I am managing my two kids small portfolios, and I am not really too emotional about them, and have made few changes to their "lazy portfolios" of about 5-6 MF's, ETF's. And their returns YTD have doubled my more active and informed approach. Oh well.
Scoot
scoot selling SBUX and the trade yesterday were essentially all at once (all on the same day). I wanted out of both for different reasons (SBUX was bottom up and the bank was top down).
I shaved off RIO a while ago to rebalance and reduce volatility of the portfolio.
long way of saying it is circumstantial and i do whatever i think is best for a specific situation.
I really like your blog- have to check on it more often. If you are interested in GeneralFinance's credits search for General Finance ContactCenter.
Hey scoot--my kids beat me too, and they don't know a stock from a bond! Even my brother-in-law, who can't decipher the quarterly statements that he gets from his company plan, beats me. All this "knowing" is obviously dangerous to our wealth! But we have more fun, eh?
Here is a possible subject for down the road...food.
About a year and a half ago you wrote this article:
http://tinyurl.com/234r27
Here are some more recent stern warnings concerning food prices:
http://tinyurl.com/29docp
http://tinyurl.com/2oonaq
Is PBJ a good food play now or has something better come up? If you have disclosure issues does that mean that we will have to read the next update on The Street?
well i don;t own PBJ.
the idea was that it narrowed out one segment of the staples group and in a slow down should offer the benefit of owning staples.
it has not really panned out that way. given its weghting in some things that have done well I am surprised it has not done better. it has not hurt people either though.
factoring in the div it is probably about even with SPX which is disappointment.
maybe booze and cigarettes are better for for recession proofing?
i have one high beta food stock and plan to add a ag or soft commodity ETF shortly. That might be a btter way to play this?
Thanks Roger.
Well, the S&P index is up 6.23% year to date, as of November 30th. Power Shares Dynamic Food & Beverage (PBJ) is up 7.87% and Fidelity Select Consumer Staples (FDFAX) is up 22.23% over the same time frame. FDFAX has got a new name, same old fund, previously called Fidelity Select Food and Agriculture.
In my Permanent Portfolio at present, the broad allocation is as follows:
Large Cap - 15.6%
Small Cap - 28%
International - 38.3%
Fixed Income - 16.9% mainly high yield
Cash equivalent - 1.2%
This is my Permanent Portfolio and represents a portion of my investments, not including my Spculative Portfolios (20% of security assets)real estate (a substantial sum) and government bonds.
The allocation model may appear out of whack, but the Permanent Portfolio itself has performed very well this year with the securities I have selected.I will evalute the allocation when I feel the need.
To each, his own.
T, small cap has had a rough year so I take it you have done some good stock picking. Good for you.
Roger,
Your idea about emotional investing was good one.
Might be offtopic - doesn't all investment classes provide good returns during a robust economy? Logically diversification helps only when done during bears. Your comments please!
Thanks..!
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