On the art of selling
One of the most important points made in the Knowledgebase is not falling in love with a stock, recognizing when the story has changed, admitting to yourself that you may have made a mistake, changing your mind, and getting out.
At the end of September last year, I had a 9% position in Fastly, which was my fourth largest position at the time. Then they suddenly pre-announced horribly bad, shocking, news, and all the problems we had been ignoring or making excuses for suddenly made sense (like lack of new customers, couldn’t get new product out of beta, fired head of Sales and Marketing, lost biggest customer, etc etc). The stock price plummeted and I exited as much as I could in the after-market and pre-market, and all of my position by the next morning, at an average price of about $91.50, and put most of the money into a competitior with an entirely different way of doing business, named Cloudflare, at about $56.50. Many others on the board did the same thing.
Now, thirty-five weeks later, the stock prices have changed places and Fastly is at $54.38 and Cloudflare is at $94.00.
In other words $1000 left in Fastly when I exited, is now, eight months later, worth $594.
And the same $1000 moved into Cloudflare at that time is now worth $1729, just about three times as much. That’s the “opportunity cost” of staying in Fastly and “waiting for it to come back”.
We had to suffer a lot of haranguing from Fastly loyalists, who claimed that Fastly had the better tech, and that we were just using crowd mentality, and group think. They refused to see that whatever kind of “great tech” that Fastly had, Fastly simply didn’t seem to know how to run their business. There were also others on the board who were just slow to act or who had drunk the “hold-forever” Kool-Aid, and stayed in and suffered.
The key to all this is to be willing to change your mind and to admit to yourself that you had been wrong, and move on to something better when appropriate. Don’t hold on thinking "Oh, if I hold on forever, they’ll get their act together and the price will come back. Sure, if you hold for another two or three years the price will probably come back to $90-$93, where you should have sold, but think of the opportunity cost. It’s not a stock, it’s your money, and you could have had it in a rising company all that time instead of riding Fastly down into the $40’s and waiting for a couple of years for it to come back into the 90’s.
And if things change in the future and Fastly gets its act together, you can change your mind again and get back in. No apologies needed, and you’ll have plenty of time to decide.
Links to the Knowledgebase for this board is in the Announcements panel that is on the right side of every page on this board. (It’s in three parts)