The reason for the sell has to do with the story appearing to change. There are several reasons for an outright sale including being wrong about the stock, something wrong at the company, top down reasons and in this case a possible change in the story.
If you know the stock then you know it will be changing to a REIT soon. This doesn't have to be good or bad but it does represent a change. While the company is in process of managing this transition it is also dealing with an SEC inquiry from a few months ago about its accounting. This by itself is not unheard of but the combination of the two simultaneously is unique. I also stumbled across data that insiders had increased their selling of late. As this has been going on the stock price doesn't really seem to be any worse for wear, it made a new yesterday a couple of hours after we sold it.
From the a man has got to know his limitations Harry Callahan school of thought I know I am not the guy to sniff out an accounting scandal. Someone (the SEC) has some questions and the insiders are selling a little more stock. There probably is no meat on this bone but I do not want to take that chance. Where things like this are concerned I would rather have to defend selling too early to a client than selling too late.I can't recall another sale made where insider activity had much of a seat at the decision table which raises a useful point for narrow based portfolios. I've tried over the years to convey my preference for avoiding slavish devotion to any single indicator or narrow combination of indicators because not everything can work all the time. Sometimes cheap stocks get cheaper, sometimes insiders are wrong, sometimes support fails and so on. I guess I would say to stay flexible my friends.
Speaking of "my friends," a funny Tweet from the most interesting man in the world; He once defended a small village in the amazon basin from ferocious fire ants by using only a pitchfork and a glass of water.
The picture was taken yesterday on a quick hike on the mountain.
4 comments:
almost as good of a return as if you would have bought BAC on 3/4/09
Be water, my friend...
Durango Wayne
happy holidays Wayne!
invoking Bruce Lee? nice
I used to pay more attention to insider trading but found it rather misleading most of the time unless it was significant in scale and widespread. Regardless, it can never be repeated enough that avoiding serious loss makes far more difference than hitting a few out of the ballpark: If the reason for buying is weakened or the thesis changes, sell and find a better candidate.
Maximizing returns on a risk adjusted basis is the sine qua non of successful long-term investing.
NB: Nominal returns are of interest of course but meaningless in terms of asset comparisons in the absence of risk adjustment (one of the reasons I go to the trouble of calculating M-square when I must make a choice between competing assets).
The most interesting man might cavil at all that of course; I understand he once made an error just to have the experience. [lol]
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