This morning I’ve been debating selling my AAPL shares before this afternoon’s earnings release. Arg. I probably won’t do it!
Chris
And what a smart fellow you turned out to be!
Nice announcement, si?
Mykie
PS
Anyone paying any attention to this stock below? I had just sold a bunch of puts on VRX, earning very good premiums and the stock then announced their purchase of the botox maker…I was hoping ENDO would do something similar.
http://seekingalpha.com/article/2159023-can-endos-ceo-do-an-…
This morning I’ve been debating selling my AAPL shares before this afternoon’s earnings release. Arg. I probably won’t do it!
Chris
And what a smart fellow you turned out to be!
Nice announcement, si?
Chris,
Geez, I saw your sentence quoted above, sent in my hooray for a good decision by you only to see a few posts later, you went ahead and sold. So I apologize for…something, now that I know you did sell.
I didn’t want you to think I was being sarcastic in my praise. It was meant to be the opposite.
Mykie
PS I notice even in my own dealings, that procrastination for me, turns out to be a strength when trading, whether buying or selling. When buying, should procrastination cause you to miss an opportunity, there’s always another one around the corner, whereas, on the selling side, rarely have I sold too late, it’s usually too early. Just philosophizing…
Yeah, waiting a day in this case would have been better. Despite the missed opportunity to make 8% on AAPL, I believe that GILD will do better over the next year. So I can’t worry about my sell and need to just know that I made a good longer term decision.
Chris
Saul,
Your initial post (934) has been a frustration of mine as well.
Adding two new stocks monthly in RB and in SA makes it even more challenging as the “buy” list grows.
You have taught me more on these boards than any book I have read on stock market investing. Don’t stop teaching, you have an incredible talent and we all appreciate your time.
-Nate
Saw your post on the Best Of list (most highly recommended posts in the public boards over the past 24 hours). If you don’t mind, I’ll share an article I wrote for the March release of Stock Advisor discussing selling.
Jim,
I actually read your article when it came out in March. I’m afraid you are setting up a straw man by comparing results of not ever selling to people who trade in and out all the time. I wasn’t talking about day trading or anything approaching it. I was talking about occasionally admitting a mistake and not continuing to call a stock a “buy” just because you thought it was a buy 5 years or 8 years ago. Some companies actually never do get their acts together. There’s no negative effect on your portfolio in trimming them. (In fact, my results illustrate that very well. While David was just extremely happy about having his first 100 bagger, I’ve more than a 100 bagger on my ENTIRE portfolio, as the initial posts on this board explain).
By the way, you say MF SA recommended selling 11 stocks over the past 12 months but that’s really deceptive. Almost all the sales I’ve ever seen sold by MF SA or MF RB have been because a company is being acquired. Sorry, but that’s not selling a stock because you have made a judgement about it. It’s not the same thing at all.
Saul
I was talking about occasionally admitting a mistake and not continuing to call a stock a “buy” just because you thought it was a buy 5 years or 8 years ago. … By the way, you say MF SA recommended selling 11 stocks over the past 12 months but that’s really deceptive. Almost all the sales I’ve ever seen sold by MF SA or MF RB have been because a company is being acquired.
Hi Saul,
While I wouldn’t know about RB (don’t work for that service), I will say that the majority of the sales in SA have not been due to acquisitions. And that is certainly true over the past year.
Here are the stocks sold out of the SA service in 2013 and YTD: CUB, CXW, DLB (partial), ENR, HGG, LH, LUV, NTDOY, QSII (partial), SMG, SLAB, SQM, SSD, TECH, TIE, and UNT. BEAM will be sold when it is taken private.
Of those, the only one sold because of a merger was Timet (Titanium Metals, TIE), which was purchased by PCP.
I’m afraid you are setting up a straw man by comparing results of not ever selling to people who trade in and out all the time. I wasn’t talking about day trading or anything approaching it. I was talking about occasionally admitting a mistake and not continuing to call a stock a “buy” just because you thought it was a buy 5 years or 8 years ago.
My article had two points.
First, that selling on occasion is fine, but there aren’t really many great reasons to do so (and I listed those that probably top the list).
Second, that not selling is more likely to be the correct answer. Buffett has analyzed his own results (and I don’t think he was including the more recent activity from Weschel and Combs) and come to the conclusion that not selling would have led to better results. Gayner (CIO at Markel) and Munger both advocate SOYA (sit on your *ss) investing. Barber and Odean showed that those with the least activity outperformed the market.
I didn’t say that not selling would always be the correct answer, just that it was more likely to be.
In my own portfolios, both the ones that are personal and the one I run for TMF, I’m tracking my selling and following what the return would have been if I had not sold (both from the sell point and from the original buy point). I’m still putting the data together for my personal portfolios, but for the MUE port (the one I run for TMF) and the 3 companies (6 total positions) with a long enough time line (admittedly a small sample), not selling would have been the correct choice for two of the companies both for the first year after and into or through the second year after (haven’t finished the third year after, yet).
Worse, from my portfolio’s perspective, not selling would have been the correct decision for all three of them through to the present. Of the six positions these three companies represented, only one is currently in the red since my original purchase and all six are in the green (by an average 144%) since I sold them. And I sold each one for perfectly justifiable reasons.
One of those, SVU (3 positions), saw recovery thanks to a rescue from an outside investor, something totally unforseeable, yet a piece of data in support of the argument favoring not selling, even in a disaster which I felt SVU had turned into. Since selling it on 8/3/12 through last night, two of the original 3 positions would have been positive since purchase by 3.3% and 57.1%, while the third would have just a 6.2% loss since purchase.
I encourage you to do the same exercise – record the original purchase price for each position along with the selling price and selling date. Then track the price forward for 1, 2, and 3 years after selling to see what happens with the stock price.
I probably won’t convince many people with data. Data-based arguments are remarkably ineffective when it comes to making a decision. (Just look at advertising. How many ads are actually just data and not trying to push at least one emotional or cognitive bias button?)
Maybe TMF needs a new category for its recommendations. Buy, sell, hold, and just let it sit.
Cheers,
Jim
I encourage you to do the same exercise – record the original purchase price for each position along with the selling price and selling date. Then track the price forward for 1, 2, and 3 years after selling to see what happens with the stock price.
Jim,
This exercise is not valid. You’re only working with half of the equation: the stock sold. You need to compare the performance of the stock sold with the performance of the stock(s) then purchased with the proceeds. The relative increase is what’s important. However, over the LNG term such an exercise is just not possible because there would be too many what ifs.
Chris
Jim, I was about to write what Chris wrote. How did the stocks do that you bought with the money you freed up? If you had good reasons to sell, the chances are that the new stocks did better, even much better.
Saul
Saul,
I think Jim could definitely try to track both the performance of stocks after selling AND the performance of the stocks purchased with the funds. Any of the portfolio services could do that, but it works best for the portfolios that are “fixed” like MDP and later SN Phoenix down the road once its cash infusions are done. Portfolios with new money coming in all the time are likely in a different situation with selling and can possibly hold companies longer if the thesis is still intact.
The stock picking services like SA, RB, etc are a bit different in that they are not managing any real money. They are just managing ideas and tracking how those ideas are doing. In that world, I agree with you 100% that the teams could do a better job tracking all picks so that members would know how the team felt those picks were doing. Yearly or twice a year summaries are just not enough and more categories are needed to help investors know whether the thesis is still intact or has changed since the recommendation.
MDP has a “What We Think Now” page for its recommendations that I think would be helpful to the non-portfolio services. That could be a one-stop shop for all picks to update everyone on the health of the “idea”. It could even be used for SOLD positions to reflect on good/bad decisions there. The focus should obviously be on current recommendations though and especially those that get less coverage on the boards. Perhaps even a numbering scheme like their risk rating could be useful to gauge how a thesis is playing out moving companies from high conviction/buy ratings down to lower hold/sell ratings over time.
In general, I love TMF for the ideas they generate. They just need work managing how to take real actions on those ideas over time. The portfolio services are better for that obviously, but incremental changes to the SA/RB services might help with actionable information as well.
Tom
As to selling, I encourage anyone interested in the subject to check our Trader Fool’s blog. You can follow him on the boards and from there find his blog.
best, Andy
You’re only working with half of the equation: the stock sold. You need to compare the performance of the stock sold with the performance of the stock(s) then purchased with the proceeds. … over the LNG term such an exercise is just not possible because there would be too many what ifs.
and
I was about to write what Chris wrote. How did the stocks do that you bought with the money you freed up?
Oh, it gets worse than that. 
Cash is fungible. So if you sell and that goes into a cash balance, how does that work? What dollars are actually going to work in the new position? Especially if one is regularly adding cash to the portfolio?
Related to that, if you have a cash balance, would you have invested in the new position anyway, even if you hadn’t sold?
What if the replacement isn’t made for 3 weeks? The 0% return on cash over that period should properly be included in any such analysis.
Accurately looking at the whole thing could very well be impossible.
Which is one reason why I’m fine dividing it into two parts. How are my buy decisions doing? (Which everybody tracks, I’m sure.) And, how are my sell decisions doing? (Which few people track, I’m sure.) Trying to combine the sell with a new buy and tracking those results is a different question.
The question I’m trying to answer with the tracking of my sells isn’t should I sell and buy something else; it’s should I sell, period.
In other words, the point isn’t to see how the combined sell / buy anew decisions (plural) does. The point is to be able to make a better sell decision (singular), to improve the process of selling. That’s where this data is helpful.
If the results show that companies sold tend to stay poor performers from the point of selling (or at least the point of originally buying), then one is making good sell decisions. One should embrace that kind and find out what is common among them.
If the results show, however, that companies sold tend to turn into good performers from the point of selling (or, especially, from the point of originally buying), then one is making bad sell decisions. One should avoid that kind and find out what mistake(s) is (are) being made. Without the data, though, you can’t tell which is which.
Cheers,
Jim
It seems wise to me that at some point SA would at least suggest to members that some companies no longer have their competitive edge. Westport, Rosetta Stone, Clean Energy Fuels, Nuance Communications, among others. Even Western Union, long a laggard compared to other recs, and now facing massive competition from Walmart, who announced recently a fund transfer service, all deserve some extra caution I believe. I keep expecting SA to at least offer a caution. Income Investors regularly reviews many of their recs and states whether or not a good buy now, a buy but better opportunities are out there, a hold for now because valuation is not good or reached their expected potential, or a sell.
I’m embarrassed to admit this, particularly on Saul’s board but just for the record, despite my strong commitment to hold almost everything for the long term, today I finally sold my remaining Westport holdings. to my credit I did at least buy and add to a position in PSIX over the last year.
Dr. D
As to selling, I encourage anyone interested in the subject to check our Trader Fool’s blog. You can follow him on the boards and from there find his blog.
Hi Andy,
Can you tell me how to locate the “Trader Fool’s blog”? In general, I have trouble locating boards that don’t offer a hyperlink to get there.
It’s a mystery that I will be glad to solve and maybe this is the time!
Mykie
I very valuable conversation. I think many members have the same concerns. And I’m glad that people are discussing it. I prefer rule breakers over stock adviser because those boards seem to tolerate a critical analysis of a company and a stock.
For me the larger problem is the volume of ideas I think that all members would be better served if more time was spent on quality and less on quantity. I’m not sure that there is anyone who buys all the ideas that are put out so a lot of them are just wasted and they come at a pace that doesn’t allow for in-depth analysis for anyone who is not a full-time investor. I wonder if we wouldn’t all be better served if there were an in-depth analysis of one or two stalks a month whether or not they were NEW.
I do find that Supernova’s Odyssey portfolio suits me better than anything else that I have tried here, because there are a more manageable number of stocks.
And then there’s our Saul. I think you must have been a wonderful physician when you were still in practice. Your ability to look beyond the noise and zero in on what’s important is an incredibly valuable skill and I am grateful that you’re willing to share your ideas with this group. PSIX, Afop… Plenty to be proud of. I have been an investor for a long time, but I am always interested in learning new skill, and ready to consider ideas that are new to me.
I owned Nuance until I decided that the management was in it for themselves, rather than partners with shareholders. I am with you Saul I think we need to cull our losers. For reading time alone.
The other issue that I think is very important here is do you re-buy a fallen stock? If you are new to investing or have less than a few years familiarity with a stock - I would say an emphatic NO. This is a sure path to wealth destruction. You are much safer buying a stock that has gone up. If you know the stock really well, you know the management, you know that they are in an investment cycle that lowers earning for a while, go right ahead. But if it is down don’t just buy because it is on the list. Motley Fool makes mistakes. Rebut something you know well that has performed well.
Hi, Mykie
I think you will find it at traderfoolblogspot.com. Or go to my page and you will see who I am following, trader fool being one of the. He references his blog in his posts. If these don’t work let me know. I hope they get you there. Let me know what you think of his analysis.
Andy
Accurately looking at the whole thing could very well be impossible.
Jim, That’s true, but if you were really trying to actually find out whether holding forever would have been better (rather than just justifying the MF policy), and it’s hard to decide what happened to the fungible cash, you could use the rest of your portfolio as a reasonable stand-in for what you would have done with the cash. You could thus compare what happened to the portfolio you kept to what happened to the stock you sold.
While figuring out what happened to the cash you got would be complicated (as you point out), tracking the rest of your portfolio from that date and comparing it to the progress of the stock you sold, would be a very simple calculation.
Just saying that “it would be better if I held” because at some time in the future the price was up is not valid (it’s silly, even). Just think of a stock that you sold at $200. It dropped to $50. It gradually came back and now, 5 years later, it’s at $220. Would you say it would have been better to have held because it’s now up 10% in 5 years!!! That really is silly. You could have thrown the money at a dartboard of MF recommendations and beat that result by 500%. And could have done even better than that by intelligent picking.
JMO
Saul
rather than just justifying the MF policy
…
Just think of a stock that you sold at $200. It dropped to $50. It gradually came back and now, 5 years later, it’s at $220. Would you say it would have been better to have held because it’s now up 10% in 5 years!!! That really is silly.
…
And could have done even better than that by intelligent picking.
Hi Saul,
You and I seem to be on two completely different pages on this topic. That’s alright, though I’ll try one more time to make my point clear.
Data is what I’m talking about, not about justifying MF’s philosophy. Maybe it’s because I was a scientist, but data is really important to me. In this instance, there are two separate questions to answer with the data available. Do the data show that I make good buy decisions? Do the data show that I make good sell decisions?
Once you have the data that tells you how good you are, you can judge probabilities of making successive good (or bad) decisions.
Let’s look at the odds of either getting these decisions correct or incorrect, based on the data that tells us how good we are.
Peter Lynch said that good investors score about 60% right. Let’s bump that up to 75% right for a really great investor and give this hypothetical investor the same odds of being right for both buying and selling. (I know I’m not that good. As of 4/15/14, David and Tom G’s combined record over the 12 years of Stock Advisor regarding active positions is 60% accuracy, meaning outperforming the S&P 500. For absolute accuracy, meaning in the green, for the entire history of Stock Advisor, the brothers combine to 72%.) We’re looking at a single chunk of money – say $1,000 – and the ability of this investor to grow that $1,000 instead of shrink it by making decisions on what to do with that $1,000.
Buy decision: The investor has a 75% chance of growing it. Woo hoo!
Subsequent sell decision: The investor has 75% x 75% = 56% chance of making two correct decisions in a row about that $1,000. Hmm, not much better than a coin flip. In other words, if he was wrong the first time – 1 - 0.75 = 25% chance – deciding to sell opens him up to being wrong a second time. Combined, that is 1 - (0.75 x 0.75) = 0.44, or 44% chance of being wrong twice in a row.
Aside (and forgive me if you already know this). That math looks odd, I know. You might think it was 25% chance of being wrong times 25% chance of being wrong or 6.25% chance of being wrong twice in a row. It doesn’t work that way, however. It’s one minus the chance of being right twice in a row.
Illustrating this with dice: What is the chance of not rolling a six twice in a row? The chance of rolling a six is 1/6 or 16.7%. The chance of doing that twice in a row is 16.7% x 16.7% = 2.78%. Therefore the chance of not rolling a six twice in a row is one minus that probability: 1 - (0.167 x 0.167) = 97.22%. In other words, when asked for the chance of doing something wrong twice in a row when given the probability of doing something right, the answer is one minus the product of the chance of doing something right twice in a row. End of aside.
Another buy decision: It just gets worse. Now the chance of being wrong by making a poor decision again is 1 - (0.75 x 0.75 x 0.75) = 0.58, or 58% chance of being wrong initially, being wrong in selling what would have been a winner, and being unlucky enough to make yet another wrong buy decision.
If I’m 75% right in my investment decisions (in other words, really good), why would I worsen my odds of being wrong regarding a given chunk of money from 25% to 44% (and all the way up to 58% wrong when replacing it with something else) by making successive decisions with it? Why would I handicap myself that way?
This is what Barber and Odean showed with real data – those who buy and sell more often perform worse than those who buy and sell less often. Comparing the best and worst quintiles, it amounted to over seven percentage points a year difference over a six-year time span.
Data and probability should drive decisions like these. The only way to judge one’s ability in making buy decisions and making sell decisions is to track the results of each forward in time.
Assuming one doesn’t need the money and that one truly is a really good stock picker and a really good seller, selling the loser and replacing it with something else is still a worse decision than just leaving it alone after having made the initial buy decision. For us mere mortals?..
Cheers,
Jim
1 - (0.75 x 0.75) = 0.44, or 44% chance of being wrong twice in a row.
Actually, upon rereading this, I realize I mispoke, for which I apologize.
The above probability is for not being right twice in a row, which is different from being wrong twice in a row. It’s the probability of being wrong on at least one of the two decisions.
Similarly for the triple decision. 58% probability of being wrong on at least one of them, not wrong solely for all of them.
My apologies for the mistake in wording.
Cheers,
Jim
The investor has 75% x 75% = 56%
No it doesn’t work this way. The second decision isn’t dependent on the first decision nor do both decisions have to be correct for the investor to have a superior outcome.
For example, the investor could make an incorrect decision to sell (ie, the equity beats the S&P from that point forward), but still find a superior investment.
Furthermore, the process isn’t binary. An investor could make a correct decision to sell, then re-deploy that money incorrectly, realize her mistake and then make a superior investment, something we would expect 75% of the time.
If we can be sure that an investor is making the correct decision 75% of the time, then it would always be correct to sell when that investor decides, and it would always be correct to redeploy those proceeds however the investor sees fit, including the very reasonable option of keeping those funds in cash.
Wow! BatonSinister, that is a great analysis! Thanks!
Saul