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Holding on to a losing investment and waiting to sell until you get back to even
Little doubt that we've all heard someone say it at one time or another, maybe we've even done it ourselves. I'm curious what your thoughts or experiences have been. I can't find any credible studies on the matter.
I think that one needs to look at their reason for buying the investment, their time frame for holding the investment as well as how much risk they're willing to take on.
I've held funds and individual equities which took a beating and I dumped them. Some of these did come back while most didn't. Other funds/equities I've held onto due to my thoughts on their longer term potential and yes, most of these funds and individual equities did come back (some much sooner than others!).
If your thesis for investing in whatever it is still stands, then hold it. If their specific biz. prospects have tanked, then dump it. That goes for any kind of fund or individual equity. That's the best answer I can come up with.
If global equity markets puke all at once like we've been seeing, then my first paragraph sums up my feelings. I don't know why there haven't been any studies on this topic.
Best of luck and enjoy the 3 day respite from the markets!
BBRY (aka RIMM) which I bought 100 shares @ $57 and still hold now @$7 is a constant reminder that diversification and manager insight often trumps an individual's concentrated hunches...or at least mine.
Ah, the eternal question baseball team owners ask every season when the pitcher they signed up for gazillion dollars immediately hurts himself or starts to pitch 4.0+ ERA.
It would depend very much on the context. Answers without that context might be dangerous. And there are no perfect answers.
Is it a leveraged intrument? If so, sell on any up day.
Is it to reduce exposure and go to cash and stay there? Perhaps for limiting further damage?
You need to figure out if the loss is within the normal volatility for that asset or not.
I personally use some technical indicators of oversold conditions and not sell at oversold conditions unless macro situation warranted it. I would first see if there are overbought assets to sell first to reduce exposure. In markets like this one, there might not be any overbought asset classes. Then wait for the oversold conditions to improve and not necessarily come back to even. One simple technical approach is to not sell if the price has gone below the Bollinger band lower level which means it has currently experienced a short term sell off and not a good time to sell. It almost always climbs back up into the band when you can sell. I don't sell if it is staying within the band because that just means the asset is within the normal volatility range even if it is losing money at that point. Avoids selling at lows reacting to current situation only to see it going back up. Typically I wait for the second bounce in a downward trending market. Works more often than not.
Best time to sell an asset class even when losing money in a downward market is when it has bounced past the upper end of the Bollinger band. If that happens. I sometimes use this when ai need to balance or rotate asset classes but isn't very useful in down markets like the current.
Is it to reposition your allocation for the future? There is no right answer but there are a lot of wrong things to avoid.
Forget the maginitude of the losses and reset to what you currently have. This avoids one of the mistakes thinking - this is down 30%, there is no way it is going back to even with that kind of loss, so I am going to sell and buy something that has held up well. Unless, the asset class you want to sell has some deep structural issues relative to others rather than just broad market conditions, this is a very common mistake that loses money. You can bet that when the markets recover your deeply down asset is going to zoom past the holding up well assets which severely underperform. So, in effect, you have locked in the losses of the higher volatility asset and jumped on to lower gains of a lower volatility asset. A very common mistake that I think many are now doing with commodities.
A better way to look at it is to see what the best instrument is now for the money that is in the losing investment based on overall market expectations for the market value you now have, not what you had. If you expect all markets to recover, sit tight or switch to an asset that has gone down even more and has no structural problems not just current sentiment (which is why it has gone down more). Blind contrary investing isn't the solution either, there might be a good reason an asset class is going down so hard (biotechs for example).
No perfect and simple answers but I hope it has stimulated some thinking on reasons for selling it and avoiding at least one common mistake.
I agree with all that vkt said (typed?). Here's a case where I didn't follow the Bollinger bands:
I bought AAPL in late 2012 @ $620/share, after falling from a high of $702/share. Value trap city! I held onto those shares (because I believed in AAPL) even though AAPL's share price went to $360 or so, until June 2014 when AAPL did a 7:1 split and then I got the heck out of AAPL soon afterwards having recouped my investment and even made a small profit.
Single stock volatility is what's made me invest more in mutual funds, although I've also landed in value trap city with these too...
My experience: It seldom works out well (full recovery and more) but it often works out better than bailing now.
It is though you just bought and now own the stock at the current price (as everyone knows). Is it worth holding now and likely to recover somewhat? Is it dead for sure? Where would you put the paltrier sales moneys? The additional difference from fresh purchase is you now can have a loss if you need one.
It's better to avoid, duh, but today's reality cannot be helped. Start in the present.
I have done this many times, alas, tending to be a holder; just recently zeroed out all losses from 02 period and now was working down the 08-09 losses. Would rather not add to them, but have plenty. Again.
I was thinking of selling SPLV (with a smaller loss) and going into something that's been hammered...XLE or IBB. I had some cash in my Roth and I bought IBB Thursday morning and sold it in the afternoon for a 7% gain. I'm glad I sold it, but at the time, I was seriously considering holding. The funds have to settle, so I'm locked out of buying right now anyways.
I got lots of those KMP (now KMI) comes to mind. No longer an MLP, screwed their shareholders. We have a lot of big oil, nat gas, pipelines and shale. Too big to fail? Too late to bail!! It seems stupid not to buy good energy companies when they're down. But my instincts are to stick with consumer/tech/biomed stuff right now. I'm considering div reinvest for those (BMY, GE, KO, JNJ, FAST, EMR, etc, you know, the old widders and orphans menu. Good luck to you and happy New Year to dem puppies. best, hawk
To directly address what I think was the original question - I believe in mark to market, period. Ignoring friction, invest in what makes sense for your portfolio.
If your reason for holding something has changed, don't hold on because you're 10% under water. By the time it recovers the 10%, that other investment you've been eyeing may have gone up 15%. That's the opportunity cost of holding on with the mindset "at least I won't lose anything". If you don't have an alternative in mind, then the question is simply one of whether it is better or worse than cash going forward - again your embedded losses don't factor in.
Friction may keep you in your old investment, but that 's a different question from whether one should hold until the investment is in the black. Friction from trading expenses, from bid/ask spreads.
In a taxable account, there's friction on winners - if a fund (or stock) has been a good performer for years, but then something changes (e.g. new manager), you may feel locked in because of taxes. Here, the recent market swoon offers an opportunity that comes along only once every few years - to get out of investments that are well past their prime.
I've got one fund for which I finally found a better alternative. But even now, after large distributions last year, it's still well above water. I'm hoping for another 5-10% market drop to make the swap palatable, i.e. so that there's less friction.
Lots of actionable comments from other MFO members. Good stuff!
Be alert to the Gambler’s Fallacy. It is attractive but it is wrong.
The Gambler’s Fallacy is the false belief that if an outcome hasn’t happened in a number of plays, it is more likely to occur on the next play. That’s obviously wrong when tossing a fair coin. Even if heads has been recorded in 10 consecutive tosses, the odds are still only 50/50 that a tails will be produced on the next toss. The coin has no memory.
The coin toss is purely random. That’s not exactly true for the marketplace since there is some evidence of persistency, but it is a reasonable starting approximation. In the short run, the market is like a coin toss with only a slight edge (53%) for a positive outcome on any given day. However, on a longer time scale, like one year, the likelihood of a positive outcome is increased to about 70%. Those are baseline data.
In a general sense, those odds are valid regardless of when you entered the market. If the funds you own are no longer attractive for whatever reason, or the market’s future prospects are perceived as dim (like perhaps because of the oil glut) by you, then selling might be the appropriate strategy. That’s never an easy decision emotionally or for the bankroll.
The decisive factor should be your projection for the future returns, not your current profit/loss profile. The buying price is history; the potential future is the key factor.
Here are two Links that you might find informative:
I think the most important thing is to find a workable investment strategy and then stick to it by maintaining your discipline in every kind of market. If you're a value investor who does his homework and believes in buy and hold investing, then you should be willing to hold onto a losing investment as long as nothing has changed to the fundamentals of that investment. If you're a momentum investor who trades a lot, then you shouldn't hesitate to dump that investment as soon as the momentum has slowed or reversed. The bad thing I think is to waiver or be wishy-washy about it. A value investor who admits occasionally he will catch a falling knife, but then loses his courage as soon as things get rough will probably never succeed. And the momentum trader who gets too psychologically attached to a stock that he should've dumped will also probably fail. Develop a strategy, test to see if it really works with virtual portfolios, then stick to it.
I assume you are referring to owning an individual stock. If so:
If the stock nosedives because it has missed earnings, releases an adverse or unfavorable press release and/or something in your investment thesis has changed, I sell it ASAP. If this occurs between the market close and the next market open the following day, I sell it with a "market" order immediately at the open. If it is news that occurs during the trading day and I become aware of it, I sell it immediately. Nearly every time this has happened to me, the first "Sell" has been the most difficult but the best "Sell" and procrastinating or delaying the inevitable only results in selling later at a substantially lower price.
"The First Cut Is the Deepest" - so sayeth Cat Stevens, Rod Stewart and Sheryl Crow.
I respectfully disagree with the idea of holding onto a losing position in an individual stock because I am a "value investor" and I am holding it "for the long term". When an individual stock position goes against you it is paramount that you limit your loss and sell at a pre-determined loss point. For me, this is about 7-8% below my purchase price. Holding a losing position is (imho) false discipline.
Why?
Because more often than not when a position quickly goes against you Mr. Market is telling you something. I have been VERY unpleasantly surprised to hold onto losing positions because I am convinced that I know something that Mr. Market does not until I am underwater 20%, 30%, etc., only to later find that there is indeed a reason for it - one that is not apparent to most investors, both individual and professional.
This is also applicable, to a lesser extent, with mutual funds and index ETFs as well. In this case the unforeseen bad news is not company specific; rather, it suggests that there is something wrong with the market, the specific sector, or the stock selections and sector weightings of the MF manager(s).
A superb example of the latter is, of course, the Sequoia Fund and a lesser known SC value fund called SouthernSun Small Cap Fund (SSSFX). For many years, SSSFX was a superb fund with stellar performance from 2007 through 2013 - so much so that it was featured here in October 2011 as one of the 'Stars in the Shadows' funds. However, it became enamored with a steady succession of "cheap" SC stocks in the energy, industrial, retail and agricultural sectors at the end of 2013. These sectors are markedly out of favor and nearly all of these positions have tanked. Because of their "investing discipline", aka blind stubbornness, they have held these positions because they are "cheap", i.e., classic value traps, and they have lagged the S&P 500 by nearly 36% over the past two years. They have lost an astonishing 16% YTD !!
I think the question implies a short-sightedness. If I'm only hoping to get back to break-even, than I'm in serious trouble. And I must not have very much confidence in the holding I purchased.
Think of your mutual fund as an investment in the individual companies it owns. Do you like the long term prospects for those companies? If so, than hang on for the long term (15-30 years) and prosper along with those companies.
This psychology of getting back to break-even just doesn't agree with me I guess. My own experience says that over very long periods (measured in decades not days or even years) I'm better off owning just about anything other than cash. I'll take stocks, houses, vacant land, collectibles, classic autos or even rare coins over cash.
None of this is meant to say that a fund can't be badly mismanaged. So there may be times to jump overboard. But I think mostly people jump for the wrong reason.
Thank you all for one fine, thoughtful and civil discussion. I'll tell you what prompted the original post.
While thawing my toes by the fire I was reading the Primecap Odyssey Funds annual report for the year past. In the letter to shareholders they described what hadn't worked for them in terms of stock selection (their detractors) showing losses of -42%, -27%, -48%, -79%, -31%, -50%, -73%, and -57% just to illustrate the ones they cited. So I thought to myself "Holy crap! These guys are the experts. I thought they might manage or strive to avoid, or at least abate, such steep declines. They must have some conviction behind these selections. Or is there something I'm not seeing?" (Note: I can not tell from the letter whether the funds actually suffered the specific declines for each issue listed in the report or if the writers were merely describing what happened to those individual issues over the course of the year but I assume it was the former.)
In addition, I was mindful of my own personal head banger Kinder Morgan (KMI) with pain in the -42% basket. Dang it, I knew better or at least I thought I did. I'm a dividend growth investor for the most part who buys and holds mostly for the income stream and growth thereof. I held on believing that this was just one of those phases that some issues go through from time to time and I also swallowed managements kool-aid, that the dividend was secure and solid growth of same was in the cards. Turns out that was complete and utter bs. Lesson learned.
Then I thought of some other fairly noteworthy melt downs involving esteemed managers: Bill Miller (LMVTX), Bill Nygren (OAKLX) and Ken Heebner (CGMFX) who I thought at one time or the other were the sharper tools in the box; and I recalled folks hanging on through the storm and vowing to sell once they got back to the even plateau.
Hence the question - does that work or do you just take your chips off the table and is there any studies that have delved into the matter. I'm quite aware of the sell decision thought process for mutual fund holdings yet sometimes leeway is granted. I do hold a handful of what I consider to be momentum stocks with which I tend to follow Delphi's down 8% and sayonara regimen but the bulk of my holdings tend to be long term commitments. At least that's my story until something better or sexier comes along. It would appear that one has to come to their own strategies for dealing with the issue.
@DelphOracle: to expand on your comments on SSSFX, Southern Sun brought out a mid-cap fund (SSEFX) which did great in 2013 and then tanked. I was in the latter and made some dough, but got out when momentum changed. Unfortunately, I usually misread such changes. The firm also agreed to be bought by AMG, but I don't know what influence that sale made have had on performance.
@mark, in the specific case of a fund that you have lost faith in, there is no way to predict with any kind of study/experience whether it will come back up or not or over what period of time as each situation is unique. So there is no right or wrong answer.
My strategy as in most things in life is to drop it as soon as I have lost faith AND not look back to see in the future to see if I made the right decision which really doesn't help. None of these decisions are very critical in the long run to worry about them much.
Yup! Well, we shall see. I'm in no big hurry, though... if it takes a while, that's OK. I need better than 102 to go even, and it's very volatile,even on good days.
An under-performance of over a year versus its benchmark is definitely a red flag. I would sell quickly if I lost confident on the fund manager's approach/stock picking process. in the annual reports they tend to reports the largest detractors as well the winners. Some are even worse that they barely discussed how badly they performed.
To the root question here ... Do you even need to get back to even?
Maybe there's a flaw in thinking every single investment you own is going to make money - and that owning it was a mistake if it doesn't .
The brakes on your car don't increase your speed. But they're nice to have anyway. House insurance is money down the drain for the vast majority who buy it.
Comments
I've held funds and individual equities which took a beating and I dumped them. Some of these did come back while most didn't. Other funds/equities I've held onto due to my thoughts on their longer term potential and yes, most of these funds and individual equities did come back (some much sooner than others!).
If your thesis for investing in whatever it is still stands, then hold it. If their specific biz. prospects have tanked, then dump it. That goes for any kind of fund or individual equity. That's the best answer I can come up with.
If global equity markets puke all at once like we've been seeing, then my first paragraph sums up my feelings. I don't know why there haven't been any studies on this topic.
Best of luck and enjoy the 3 day respite from the markets!
I've done that with a fund provided it had decent AUM and wasn't anything beyond a vanilla stock or bond fund. Lots of patience required.
It's been a lot harder with an individual stock.
It would depend very much on the context. Answers without that context might be dangerous. And there are no perfect answers.
Is it a leveraged intrument? If so, sell on any up day.
Is it to reduce exposure and go to cash and stay there? Perhaps for limiting further damage?
You need to figure out if the loss is within the normal volatility for that asset or not.
I personally use some technical indicators of oversold conditions and not sell at oversold conditions unless macro situation warranted it. I would first see if there are overbought assets to sell first to reduce exposure. In markets like this one, there might not be any overbought asset classes. Then wait for the oversold conditions to improve and not necessarily come back to even. One simple technical approach is to not sell if the price has gone below the Bollinger band lower level which means it has currently experienced a short term sell off and not a good time to sell. It almost always climbs back up into the band when you can sell. I don't sell if it is staying within the band because that just means the asset is within the normal volatility range even if it is losing money at that point. Avoids selling at lows reacting to current situation only to see it going back up. Typically I wait for the second bounce in a downward trending market. Works more often than not.
Best time to sell an asset class even when losing money in a downward market is when it has bounced past the upper end of the Bollinger band. If that happens. I sometimes use this when ai need to balance or rotate asset classes but isn't very useful in down markets like the current.
Is it to reposition your allocation for the future? There is no right answer but there are a lot of wrong things to avoid.
Forget the maginitude of the losses and reset to what you currently have. This avoids one of the mistakes thinking - this is down 30%, there is no way it is going back to even with that kind of loss, so I am going to sell and buy something that has held up well. Unless, the asset class you want to sell has some deep structural issues relative to others rather than just broad market conditions, this is a very common mistake that loses money. You can bet that when the markets recover your deeply down asset is going to zoom past the holding up well assets which severely underperform. So, in effect, you have locked in the losses of the higher volatility asset and jumped on to lower gains of a lower volatility asset. A very common mistake that I think many are now doing with commodities.
A better way to look at it is to see what the best instrument is now for the money that is in the losing investment based on overall market expectations for the market value you now have, not what you had. If you expect all markets to recover, sit tight or switch to an asset that has gone down even more and has no structural problems not just current sentiment (which is why it has gone down more). Blind contrary investing isn't the solution either, there might be a good reason an asset class is going down so hard (biotechs for example).
No perfect and simple answers but I hope it has stimulated some thinking on reasons for selling it and avoiding at least one common mistake.
I bought AAPL in late 2012 @ $620/share, after falling from a high of $702/share. Value trap city! I held onto those shares (because I believed in AAPL) even though AAPL's share price went to $360 or so, until June 2014 when AAPL did a 7:1 split and then I got the heck out of AAPL soon afterwards having recouped my investment and even made a small profit.
Single stock volatility is what's made me invest more in mutual funds, although I've also landed in value trap city with these too...
It seldom works out well (full recovery and more) but it often works out better than bailing now.
It is though you just bought and now own the stock at the current price (as everyone knows). Is it worth holding now and likely to recover somewhat? Is it dead for sure? Where would you put the paltrier sales moneys? The additional difference from fresh purchase is you now can have a loss if you need one.
It's better to avoid, duh, but today's reality cannot be helped. Start in the present.
I have done this many times, alas, tending to be a holder; just recently zeroed out all losses from 02 period and now was working down the 08-09 losses. Would rather not add to them, but have plenty. Again.
So that's a non-answer, pretty much.
KMP (now KMI) comes to mind. No longer an MLP, screwed their shareholders.
We have a lot of big oil, nat gas, pipelines and shale. Too big to fail? Too late to bail!!
It seems stupid not to buy good energy companies when they're down. But my instincts are to stick with consumer/tech/biomed stuff right now. I'm considering div reinvest for those (BMY, GE, KO, JNJ, FAST, EMR, etc, you know, the old widders and orphans menu.
Good luck to you and happy New Year to dem puppies.
best, hawk
If your reason for holding something has changed, don't hold on because you're 10% under water. By the time it recovers the 10%, that other investment you've been eyeing may have gone up 15%. That's the opportunity cost of holding on with the mindset "at least I won't lose anything". If you don't have an alternative in mind, then the question is simply one of whether it is better or worse than cash going forward - again your embedded losses don't factor in.
Friction may keep you in your old investment, but that 's a different question from whether one should hold until the investment is in the black. Friction from trading expenses, from bid/ask spreads.
In a taxable account, there's friction on winners - if a fund (or stock) has been a good performer for years, but then something changes (e.g. new manager), you may feel locked in because of taxes. Here, the recent market swoon offers an opportunity that comes along only once every few years - to get out of investments that are well past their prime.
I've got one fund for which I finally found a better alternative. But even now, after large distributions last year, it's still well above water. I'm hoping for another 5-10% market drop to make the swap palatable, i.e. so that there's less friction.
Lots of actionable comments from other MFO members. Good stuff!
Be alert to the Gambler’s Fallacy. It is attractive but it is wrong.
The Gambler’s Fallacy is the false belief that if an outcome hasn’t happened in a number of plays, it is more likely to occur on the next play. That’s obviously wrong when tossing a fair coin. Even if heads has been recorded in 10 consecutive tosses, the odds are still only 50/50 that a tails will be produced on the next toss. The coin has no memory.
The coin toss is purely random. That’s not exactly true for the marketplace since there is some evidence of persistency, but it is a reasonable starting approximation. In the short run, the market is like a coin toss with only a slight edge (53%) for a positive outcome on any given day. However, on a longer time scale, like one year, the likelihood of a positive outcome is increased to about 70%. Those are baseline data.
In a general sense, those odds are valid regardless of when you entered the market. If the funds you own are no longer attractive for whatever reason, or the market’s future prospects are perceived as dim (like perhaps because of the oil glut) by you, then selling might be the appropriate strategy. That’s never an easy decision emotionally or for the bankroll.
The decisive factor should be your projection for the future returns, not your current profit/loss profile. The buying price is history; the potential future is the key factor.
Here are two Links that you might find informative:
https://research.stlouisfed.org/publications/es/02/ES0208.pdf
Behavioral Finance: Key Concepts - Gambler's Fallacy | Investopedia
I hope you find these two brief references helpful.
Best Wishes for a rapid recovery.
If the stock nosedives because it has missed earnings, releases an adverse or unfavorable press release and/or something in your investment thesis has changed, I sell it ASAP. If this occurs between the market close and the next market open the following day, I sell it with a "market" order immediately at the open. If it is news that occurs during the trading day and I become aware of it, I sell it immediately. Nearly every time this has happened to me, the first "Sell" has been the most difficult but the best "Sell" and procrastinating or delaying the inevitable only results in selling later at a substantially lower price.
"The First Cut Is the Deepest" - so sayeth Cat Stevens, Rod Stewart and Sheryl Crow.
It is also the best.
I respectfully disagree with the idea of holding onto a losing position in an individual stock because I am a "value investor" and I am holding it "for the long term". When an individual stock position goes against you it is paramount that you limit your loss and sell at a pre-determined loss point. For me, this is about 7-8% below my purchase price. Holding a losing position is (imho) false discipline.
Why?
Because more often than not when a position quickly goes against you Mr. Market is telling you something. I have been VERY unpleasantly surprised to hold onto losing positions because I am convinced that I know something that Mr. Market does not until I am underwater 20%, 30%, etc., only to later find that there is indeed a reason for it - one that is not apparent to most investors, both individual and professional.
This is also applicable, to a lesser extent, with mutual funds and index ETFs as well. In this case the unforeseen bad news is not company specific; rather, it suggests that there is something wrong with the market, the specific sector, or the stock selections and sector weightings of the MF manager(s).
A superb example of the latter is, of course, the Sequoia Fund and a lesser known SC value fund called SouthernSun Small Cap Fund (SSSFX). For many years, SSSFX was a superb fund with stellar performance from 2007 through 2013 - so much so that it was featured here in October 2011 as one of the 'Stars in the Shadows' funds. However, it became enamored with a steady succession of "cheap" SC stocks in the energy, industrial, retail and agricultural sectors at the end of 2013. These sectors are markedly out of favor and nearly all of these positions have tanked. Because of their "investing discipline", aka blind stubbornness, they have held these positions because they are "cheap", i.e., classic value traps, and they have lagged the S&P 500 by nearly 36% over the past two years. They have lost an astonishing 16% YTD !!
Bottom line: cut your losses quickly.
And this:gurufocus.com/news/291861/time-arbitrage-and-financial-strength
In Buffett's case he is talking about growth stocks perhaps more than value, but the notion of "time arbitrage" is the same.
Think of your mutual fund as an investment in the individual companies it owns. Do you like the long term prospects for those companies? If so, than hang on for the long term (15-30 years) and prosper along with those companies.
This psychology of getting back to break-even just doesn't agree with me I guess. My own experience says that over very long periods (measured in decades not days or even years) I'm better off owning just about anything other than cash. I'll take stocks, houses, vacant land, collectibles, classic autos or even rare coins over cash.
None of this is meant to say that a fund can't be badly mismanaged. So there may be times to jump overboard. But I think mostly people jump for the wrong reason.
While thawing my toes by the fire I was reading the Primecap Odyssey Funds annual report for the year past. In the letter to shareholders they described what hadn't worked for them in terms of stock selection (their detractors) showing losses of -42%, -27%, -48%, -79%, -31%, -50%, -73%, and -57% just to illustrate the ones they cited. So I thought to myself "Holy crap! These guys are the experts. I thought they might manage or strive to avoid, or at least abate, such steep declines. They must have some conviction behind these selections. Or is there something I'm not seeing?" (Note: I can not tell from the letter whether the funds actually suffered the specific declines for each issue listed in the report or if the writers were merely describing what happened to those individual issues over the course of the year but I assume it was the former.)
In addition, I was mindful of my own personal head banger Kinder Morgan (KMI) with pain in the -42% basket. Dang it, I knew better or at least I thought I did. I'm a dividend growth investor for the most part who buys and holds mostly for the income stream and growth thereof. I held on believing that this was just one of those phases that some issues go through from time to time and I also swallowed managements kool-aid, that the dividend was secure and solid growth of same was in the cards. Turns out that was complete and utter bs. Lesson learned.
Then I thought of some other fairly noteworthy melt downs involving esteemed managers: Bill Miller (LMVTX), Bill Nygren (OAKLX) and Ken Heebner (CGMFX) who I thought at one time or the other were the sharper tools in the box; and I recalled folks hanging on through the storm and vowing to sell once they got back to the even plateau.
Hence the question - does that work or do you just take your chips off the table and is there any studies that have delved into the matter. I'm quite aware of the sell decision thought process for mutual fund holdings yet sometimes leeway is granted. I do hold a handful of what I consider to be momentum stocks with which I tend to follow Delphi's down 8% and sayonara regimen but the bulk of my holdings tend to be long term commitments. At least that's my story until something better or sexier comes along. It would appear that one has to come to their own strategies for dealing with the issue.
Anyway, good stuff. Thanks.
My strategy as in most things in life is to drop it as soon as I have lost faith AND not look back to see in the future to see if I made the right decision which really doesn't help. None of these decisions are very critical in the long run to worry about them much.
So I agree with your conclusion.
http://www.stockoodles.com/#page/charts/charts.php?action=loadData&symbol=GILD
An under-performance of over a year versus its benchmark is definitely a red flag. I would sell quickly if I lost confident on the fund manager's approach/stock picking process. in the annual reports they tend to reports the largest detractors as well the winners. Some are even worse that they barely discussed how badly they performed.
Maybe there's a flaw in thinking every single investment you own is going to make money - and that owning it was a mistake if it doesn't .
The brakes on your car don't increase your speed. But they're nice to have anyway.
House insurance is money down the drain for the vast majority who buy it.