Some of my biggest missed opportunities have been good to great companies that hit a bad patch and which I either didn’t stay in or didn’t use the opportunity to get in:
You cannot invest by looking in the rear view mirror. It’s easy to pick the winners of the past, looking backward. If your portfolio has done for you what you wanted it to do, you did good.
b&w
Saul said;
For example, the MF RB could have sold and told their clients to put the money into Arista or Shopify, which are also MF RB picks, and both of which they like a lot, and their clients could have had a double in the last year in Arista, and a triple or quadruple in Shopify.
Well that’s pure speculation, at the time they had no knowledge that those would double or triple.
But I understand what you’re getting at.
I’ve been of the same mind as zuzu that they shouldn’t require themselves to pick two companies a month.
And you have to vet out all their picks, they don’t care what the prices are when they pick them.
Often I think they don’t even give IPO offerings a good going over when picked- looking at The Container Store, etc.
JT
I don’t follow Zoe’s. I didn’t read the earnings release or the conference call, but I have to ask: When does saying you are long-term investors mean sticking your head in the sand? If it takes more than a change in price to change your opinion, what does it take? Why is this stock still a recommendation?
Just wondering,
Saul
As a ZOES shareholder who’s about 50% down, I have asked this question myself. Unfortunately, there’s no easy answer. Many stocks with excellent long term appreciation have significant temporary drops in price like ZOES. So a drop in the share price isn’t a good reason to sell. In fact, it might be a great time to add more if your overall thesis is intact. And selling with every setback increases trading costs and often taxable events. I’ve also found that my sell points are often poorly timed. After I sell, there’s often a very sizable bounce in the price, sometimes even a double off the bottom. So it’s best to be cautious about selling to hastily.
As for ZOES, there has been a deterioration in the fundamentals so I wouldn’t add more unless there’s some change in this trend. On the other hand, I wouldn’t be anxious to sell due to a very low valuation on a price to sales basis. I don’t see any other similar restaurant stocks at such a low price by this multiple. There is likely to be a strong rebound in the price even if the fundamentals don’t improve drastically. Additionally, the overall thesis is still reasonably intact. Overall revenues have continued to increase. The comparable restaurant sales seem consistent with weakness in the sector rather than a company-specific problem. That being said, I have questions about this company, specifically the inability to outperform peers and the lack of strong profitability/earnings power. I will look to exit at a more attractive price if the fundamentals don’t improve. While I think “price anchoring” can be a reason for not selling, I think the above valuation considerations are rational reasons people are unwilling to sell a dropping stock. And adding to a stock with momentum can be a bad strategy - the proverbial “chasing performance” which can absolutely kill your portfolio. I have had a few stocks where the prices outran the fundamentals and then they crashed and burned.
With a stock like ZOES, I do reevaluate my initial thesis and buy decision. In other words, what might have been a flaw in this decision. In retrospect, the lack of profitability was probably a red flag for this type of company. And the risk was greater then I anticipated for this type of company so I would have opened a smaller position even if I had still invested.
Just my two cents.
David
Dave
Zoes:
remmdawg wrote: Additionally, the overall thesis is still reasonably intact.
While I don’t think they have changed the overall thesis, as you mentioned, there has been a “there has been a deterioration in the fundamentals” It was this that caused me to pull out a while back, still at a loss.
It has been quite a while since I looked at them but it seemed originally they were able to fund their expansion from on-going operations reasonable well without without taking on a huge amount of debt or dilution of shares. But that doesn’t seem to be the case now and is going to be more difficult going forward if they have negative SSS. The last 4 quarters have seen a large drop of Cash on Hand:
July 2016: 14.4M
Oct 2016: 9.5M
Dec 2016: 5.4M
Apr 2017: 3M
From 2014 to 2016 Year end they have gone: 29.3M to 19.1M to 5.4M
Given the burn rate, I can’t see how they will not have to raise cash this quarter somehow to fund operations let along to keep on expanding.
Dave,
Just a couple of thoughts on your post regarding your position in ZOES. Feel free to take with the appropriate grain of salt.
As for ZOES, there has been a deterioration in the fundamentals so I wouldn’t add more unless there’s some change in this trend. On the other hand, I wouldn’t be anxious to sell due to a very low valuation on a price to sales basis. I don’t see any other similar restaurant stocks at such a low price by this multiple.
I think that you are looking at it the wrong way (at least from my perspective, perhaps not from yours). The question is not how they compare to other restaurant stocks. How do they compare to other stocks? If you sold ZOES and put that capital elsewhere, could it perform better for you? If not, then stay. If you think that it could, then sell and buy what you perceive as the better performing alternative. Is there a reason why you need to have restaurant exposure in your portfolio?
There is likely to be a strong rebound in the price even if the fundamentals don’t improve drastically.
Why?
Best of luck to you.
I think that you are looking at it the wrong way (at least from my perspective, perhaps not from yours). The question is not how they compare to other restaurant stocks. How do they compare to other stocks?
This is precisely the unnecessary difficulty I was pointing to. Keep buying and selling well separated. All you need to know to sell is whether or not the stock under consideration will or will not outperform your targets. If not, sell.
If you have the cash, buy something on your wish list.
KISS
Denny Schlesinger
While I don’t think they have changed the overall thesis, as you mentioned, there has been a “there has been a deterioration in the fundamentals” It was this that caused me to pull out a while back, still at a loss.
Yes, people have different selling thresholds. To avoid excessive trading, I have a higher threshold. Honestly, if I never sold a stock, I might be doing better.
With any stocks, it’s important to realize what you know and don’t know. We know the fundamentals (namely growth) have declined. But we don’t know what the future holds. I don’t buy a stock without signifant research and thought. So I take a similar approach to selling.
Dave
I think that you are looking at it the wrong way (at least from my perspective, perhaps not from yours). The question is not how they compare to other restaurant stocks. How do they compare to other stocks? If you sold ZOES and put that capital elsewhere, could it perform better for you? If not, then stay. If you think that it could, then sell and buy what you perceive as the better performing alternative. Is there a reason why you need to have restaurant exposure in your portfolio?
Valuation is very sector specific so it is important to view valuation compared to its peers instead of a software stock, for example. But I agree that it’s important to look at other alternatives for investment when deciding to sell. As I just posted in reply to somebody else, I have learned to be humble regarding what I know or don’t know. For this reason, I’m not anxious to be a frequent trader with a quick trigger for selling stocks. And no I don’t need restaurant exposure. It’s a fair question whether certain sectors should be avoided at times. Diversification can be a good way to limit risk and volatility but one can be overdiversified as well. Ideally, it would be best to limit a portfolio to just a few high quality stocks but only if you were an expert at determining quality. I do think MF has a weakness with too many stock picks which diminish the quality of their picks and returns.
There is likely to be a strong rebound in the price even if the fundamentals don’t improve drastically.
Why?
This is what I’ve observed from many years of investing experience. Why? I would guess that it’s a combination of short covering at times and also bargain hunting due to valuation. Again, ZOES is at a very low price to sales multiple (but now up about 30% off an intraday low). We’re already seeing this phenomenon occurring. Even after this 30% snap back from the bottom, ZOES is still trading at an enterprise value of 0.9 times sales. PNRA is at 2.5 times sales. SBUX is at over 4 times sales. CMG is at almost 3 times sales. And ZOES has much more room to grow sales than these big fish. I could go on but I think you get my point.
Dave
I really don’t understand the need for diversification by stock. If you can’t find an outstanding investment in a sector, and think you need that sector for diversification, buy an ETF.
There is a finite limit to the number of stocks you can follow reliably and in detail.
I really don’t understand the need for diversification by stock. If you can’t find an outstanding investment in a sector, and think you need that sector for diversification, buy an ETF.
I don’t think anybody suggested buying a stock (like ZOES) purely for diversification. The thesis for ZOES is that it would be a good bet to outperform the sector over the longer term due to its differentiation (Mediterranean, more healthy options) from other restaurants such as the plethora of burger joints. It’s not a sure thing. But nothing is, even “winning” stocks. They could collapse while ZOES rises back to where it was.
No investment can be termed “outstanding” unless you have the benefit of hindsight. Every stock in every sector has known and unknown risks.
I do agree, however, that spreading your bets too widely on lower conviction stocks doesn’t make sense. It’s better to limit your portfolio to higher conviction/higher quality stocks.
There is a finite limit to the number of stocks you can follow reliably and in detail.
True, but does following a stock “in detail” really give you any advantage? If you follow them too closely, you would be selling stocks continuously at every hiccup. My best investments have been stocks I’ve held for a very long time while ignoring the “detail.” On the other hand, I’ve foolishly sold some stocks based on the “details” only to see them outperform handily.
dave
Yes close followig pays off. For me at least. And I have made that mistake of selling on a detail but that was a judgement error,not because I followed the company closely.
Details may be what gives you an edge,small acorns of news can grow into giant oaks of news. But it won’t help in getting the stock at the acorn price stage if you never notice.
My best investments have been stocks I’ve held for a very long time generally good advice but if something major changes (Nokia and iPhone) get out.
Well, I dumped my Zoes. Also, Infinera, Trip Advisor, Go Pro, and about half of my Skechers. Saul says don’t look back. Well, Schwab keeps the sold stocks on the portfolio until the trade settles, just shows zero shares.
How did I do? Hmmmm. Next day price change: Zoes, + 5.61%; Infn, + 5.56%; Trip + 3.79%; SKX, +2.74%; GPRO, +2.43%.
As public service, I should post my sales in real time.
KC
Yes close followig pays off. For me at least. And I have made that mistake of selling on a detail but that was a judgement error,not because I followed the company closely.
Details may be what gives you an edge,small acorns of news can grow into giant oaks of news. But it won’t help in getting the stock at the acorn price stage if you never notice.
My best investments have been stocks I’ve held for a very long time generally good advice but if something major changes (Nokia and iPhone) get out.
Good points.
ell, I dumped my Zoes. Also, Infinera, Trip Advisor, Go Pro, and about half of my Skechers. Saul says don’t look back. Well, Schwab keeps the sold stocks on the portfolio until the trade settles, just shows zero shares.
How did I do? Hmmmm. Next day price change: Zoes, + 5.61%; Infn, + 5.56%; Trip + 3.79%; SKX, +2.74%; GPRO, +2.43%.
As public service, I should post my sales in real time.
Haha, this usually happens to me too. I dumped GPRO after a huge loss only to see it bounce back up a bit right afterwards. I also dumped SWIR with a small gain after riding it up and then down again. It’s up almost 75% since I dumped it after a very modest positive surprise on earnings. Go figure. The price swings seem almost random. GPRO is below where I sold but it took awhile. I’ve had a similar experiences with the 3D printing stocks. They are still up significantly from my sell points although the fundamentals remain in the toilet.
These are my losers (although SWIR is technically a winner it feels like a loser). I have kept my winners which are fortunately the vast majority of my holdings.
I also held TRIP and sold at about breakeven in the 60’s after reexamining my thesis. I increased my position in PCLN which has done better and seems to have a much stronger competitive position. TRIP was a good sell. MF has been wrong (SA and RB) on this one although they may be eventually proven correct.
I still hold SKX with a modest gain. I bought at low prices. It’s a valuation play with quite a large runway for growth, especially internationally.
Since the markets move so much in unison and randomly in the short term, maybe you should sell in small amounts and not all your shares in all these stocks on one day.
Yeah, don’t look back. Look at the experience as a lesson learned. You will gain from this knowledge in the future. And you might have a nice tax loss to reduce capital gains!
dave
On the question of diversification, the modern problem is entirely new: massive over-valuation across all sectors (including therefore the S&P) with just one exception.
It certainly worries me that the great majority of my US investments can be described as ‘tech.’ in one form or another. But there it is: the only sector where companies can be found offering real value in a new industrial revolution. I do not see that there is much that can be done about it.
Next day price change:
Hi KC, but where are they now?
Hi KC, but where are they now?
Saul,
My guru says to not look back. 
Schwab dropped them from the portfolio after ~2 days so they don’t show and I don’t know. I do know that TRIP was just listed as a Team Tom Best Buy Now. From my perspective that confirms it as a good sell: that it isn’t going up anytime soon.
KC
I dropped TRIP on January 7, 2016 at $78.30 for a small loss. Today $39.13.
Denny Schlesinger
“I do know that TRIP was just listed as a Team Tom Best Buy Now. From my perspective that confirms it as a good sell”
That’s harsh. Though I have made similar observations