On selling.
It’s been a while since I’ve posted because of medical problems, but here I am again.
As I wrote over and over again in the Knowledgebase, I feel that selling when appropriate, instead of holding on and hoping for a turnaround, or trying to wait “until it gets back to my purchase price”, is one of the most important things that you can do in investing. Even if the stock does eventually come back three, four, or five years later, because of the opportunity cost.
And I almost never, ever, EVER, sell out because a stock has gone up, although I might trim a little, especially if the position has gotten too large.
I was reminded of this after Bert Hochfeld mentioned Fastly (not a recommendation, just a mention) in a recent article. It reminded me of exiting Fastly a number of years ago. It and Cloudflare had similar products at the time, and after a quarter in which Cloudflare reported seven or eight hundred new customers, and Fastly reported ten new customers in the quarter, I exited. A lot of others did too, but we were literally attacked by a couple of board members who insisted that Fastly had by far the better technology and would win out in the end, and who were loading up on Fastly shares. I don’t remember the exact price I exited at but Fastly had reached a high in 2020 of about $127 and is now at a price of less than $9. (Numbers of new customers above are from my memory and are not exact, I didn’t look them up.
A more recent example was Aehr. I got out at about $38 because revenue growth was crashing and the CEO seemed to be pleading with customers to submit orders. Others saw it differently and decided to stay in and ride it out. The high had been about $53 or 54 but I didn’t care. I couldn’t sell any higher than where the price was when I sold. Aehr is now at about $11, and those highs were just back a little over half a year ago.
Of course, our board was founded based on the Westport fiasco back in 2013 or so. It was a highly regarded company at the time, and recommended as a Buy, but I saw a company with losses that were 250% of total revenue, and gross margins about 30%, and I pointed out on the Westport board that they would have to quintuple their revenue (which was quite unlikely as they only growing revenue by 15% yoy), to break even. And that was if they quintupled revenue without adding any additional expenses like adding additional employees. It was impossible. I was never so attacked as I was on that board for pointing out that their darling company had clay feet. It was roughly $30 per share at the time. Here’s what I wrote about it on the Knowledgebase :
“on the WPRT board, which used to be a MF favorite, when the price dropped from $32 to $25 lots of people felt it was a bargain, and bought more, and at $20 “doubled down”, and “doubled down” a second time at $15, etc. It’s hard for people to see a stock they believe in go down to what they think are ridiculous levels without buying more (it’s at $2.60 as I write in Jan 2020), especially if it’s misleadingly still labeled a “Buy.”
I just saw a current price of $5.60 but found that they did a ONE FOR TEN reverse split in 2023, so an old share is just one tenth of that $5.60, or just $0.56 or 56 CENTS !!!
It was after Westport that people from that board had asked me to start a board of my own and I think this one was started early in 2024.
There’s a huge opportunity cost in waiting it out, even for the companies that do eventually come back to where you could have sold out in the first place. Okay, what is the alternative? Well you could sell the problematic company and buy something that doesn’t have that problem.
FOR EXAMPLE:
I took my position in AXON about ten months ago at about $185 and now it’s at about $304, which is up 64% in ten months. (I’ve also added small amounts on the way up).
I took my position in CELH about seven months ago at about $54 and now it’s at about $83, which is up 54% in seven months. (I trimmed about 10% of my number of shares Friday at $83. It’s still a 17% position even after the trim, and I have no plans for a further trim).
I took my position in ELF about seven months ago at about $103 and now it’s at about $164, which is up 59% in seven months. (And that’s even after a big sell off from a high of $217 because a competitor reported a slow down).
And for the fourth of my big positions, I took my position in IOT about a year and a couple months ago at about an average price of about $19 and now it’s at about $41, which is up 116% in a year and a couple of months. (I’ve added small amounts and trimmed small amounts on the way up).
If I had held on to my problematic stocks, I simply wouldn’t have had the money to have invested as much as I did in these positions. That’s opportunity cost.
And for disclosure, my portfolio is up 20% year-to-date. (19.9%, actually)
Saul
