Why?

I received this message today about a stock that MF SA is finally exiting:

XXXXX now sits at a 75% loss since our original recommendation 10 years ago and has underperformed the market by almost 190 percentage points.

I just don’t understand why they stayed. What’s the point? Do you realize what a 75% loss does to your capital? The stock would have had to risen 300% (!) from there to simply get your capital back to where it was when you bought it 10 years ago. And what an opportunity cost! They indicate that the S&P more than doubled in that period of time, while your stock was losing 75% of its value.

Sometimes you have to be willing to admit a position turned out to be a mistake, and move on.

Saul

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I keep one of those stocks in my portfolio that is down so far it will never recover. Westport Fuel is down 95%, I have a small share count I kept thinking that Natural Gas was going to fuel the trucking industry and cars would run on French fry oil. This stock is a sad reminder that not all company ideas are good investment. Sometime it is hard to give up your convictions and then it can be to late. Unfortunately, the market is usually right.

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I have held a number of the calamities of SA over the past 5 years, and I have come to the conclusion that the SA team is happy to suggest when you buy, but not so much when to sell … which incidentally becomes the most important decision when holding.

What irks me the most in the 10% Promise articles that deliver the bad news of another precipitous drop is the following “Remember, Fools: We’re long-term investors here and it takes a lot more than a change in price to change our opinion of a stock. If we do find something worth reacting to, we’ll tell you ASAP”

Often the stock price tells you all you need to know. I have a decent net gain over all from the SA picks so my complaint is that some of the losses are avoidable, particularly TCS where it was so obvious that the thesis was broken and I commented on the boards during subsequent earning season urging TCS holders to save themselves from more losses … that was the easiest SELL decision I ever had to make even though I was 40% down (could have been 80%)

Why leave it so late? So I agree with Saul - just admit the mistake - and I would add, perhaps avoid recommending stocks where there is a relationship with management (TCS, WFM, etc)

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I never could buy Westport Innovations Inc. as it was called back then. I did buy other renewable fuel stocks which did not do so good either.

http://softwaretimes.com/pics/wprt-07-27-2017.gif

Denny Schlesinger

Sometimes you have to be willing to admit a position turned out to be a mistake, and move on.
Saul

I think you could clear out your entire “Saul Knowledge Base” but for this one sentence and that alone would improve the reader’s returns by an order of magnitude!

IMO, less important as to why you got in to a stock…is why and when did you get out…this isn’t as exciting to discuss and there are fewer articles and discussions devoted to the topic…but it may be the single most important revelation you have brought to this board.

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I just don’t understand why they stayed.

I agree with Saul, et al.

The difficulty is often when the share price drops a few percent, then another few percent, then stabilizes or increases a bit, then falls again, etc. When to sell? That situation can turn out to be like the death from a thousand cuts. At some point long before catastrophic loss (I’d say 75% qualifies!), SA should be putting out the sell rec, though.

Pete

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Sometimes you have to be willing to admit a position turned out to be a mistake, and move on.
Saul

I think you could clear out your entire “Saul Knowledge Base” but for this one sentence and that alone would improve the reader’s returns by an order of magnitude!
Dumaflotchie

Thanks, Duma. I think that two things prevent people from admitting the mistake and moving on. One is falling in love with the stock and feeling they always have to defend it instead of looking at it’s possible problems. The other is price anchoring: “How can I sell now? I’d have a loss!”

Saul

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TMF has built their business with mantra “buy and hold.” Admitting mistakes and advising to sell violates the core principle of their marketing thesis.

Some time ago, as a member of one of TMF’s paid services I complained that TMF was a lousy service and did not provide adequate advice when someone needed to sell. They seemed to believe that everyone was in a financial position to just hold everything forever. I had a need to raise capital (in order to pay off my mortgage, this was not an investment decision, it was a life decision my wife and I made). The only place I had sufficient funds was in my investment accounts.

Spiffypop took offense and replied personally to my comment. He berated me for calling the service “lousy.” He seemed to interpret my comment as applying to the service in general as opposed to sell advice which was the focus of my comment. I was surprised that he even read my post and took the time to personally respond. I was even more surprised that he was so defensive.

In general, TMF provides some great prospecting opportunities, but you best develop your own criteria for knowing when to get out of a company’s company because you won’t get a sell notice from TMF on a failing position until most of your capital is gone.

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I feel TMF services are terrified of selling, then 4 years later someone will inevitably bring up that the stock is up 20% from where you sold it. What a mistake the posters will clamor! Long term buy and hold over many years is the only way to invest.

Of course the fool doesn’t track what they did with the funds sold. Maybe bought another stock/investment that went up much more in that time period. Maybe not.

I agree with Saul’s thinking that it’s your entire portfolios results that matter. Not 1 individual stock.

One of the many lessons I’ve learned from this board(thank you Saul) is to not stress if a stock sold eventually goes up. To paraphrase Saul, you can’t own everything, and its what’s in your portfolio that counts.

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I agree that it’s your entire portfolios results that matter. Not 1 individual stock.

One of the many lessons I’ve learned from this board is to not stress if a stock sold eventually goes up. You can’t own everything, and its what’s in your portfolio does that counts.

Hi tobapeg, You’ve learned two of the most important lessons there is to learn. Best wishes on your investing.
Saul

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One of my favorite rules of investing:

It’s okay to be wrong. It’s not okay to stay wrong.

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Sounds like a “story” company/stock.
People get so endeared by the “story” that they stop using logic or
common sense. And they watch the value go to nil - because well the story is
soooo good and true and makes so much sense that others will see the sense.
But the story is only that - a story.
Sometimes the stories come around in cycles - and a company or stock that
has taken a dive into the pits comes back. Generally the second life is much
like the first - and the swan dives again.

I don’t remember the name of the company I followed into oblivion - but the story
was irradiation of foods to extend the shelf life. Wonderful idea - but
refrigeration worked better and was cheaper.

Howie52
You can find the same logic in autos, computers, internet stories. When the story
is more important than the economics, let the company go into that long goodnight.

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I subscribe to more than one TMF service. I haven’t looked at any for months, not that’s a smart use of a limited budget for investing knowledge. :slight_smile: For one of those services I have never read a monthly publication.

It might help to remember there are ~8,000 public companies, and every year hundreds disappear. Someone bought them, thought they were a sound investment. Also, the majority of market profits are made from a small minority of those companies. It makes sense to me that the most profitable methods require constant reshuffling of priorities and keeping abreast of developments in many areas, including technology of course, but also medicine, politics (yuck), consumer trends, business trends and even culture.

With that merry-go-round rotation among public corporations there have been thousands of companies that have come and gone, many times more than exist today. Before they go poof! they destroy investor’s capital which is forever unlikely to grow the economy again. And very few of those survivors were around 50 years ago, and still fewer that would have been a top-tier investment from then until now. So even if we believe in LTBH with all we have (I have little against it, except for my own investing style) we all have to define “long term.”

I don’t care if someone thinks my holdings don’t fit their definition of “long term.” I care if they worked and if profits are increasing. That’s my definition of LONG TERM. Even if that’s wrong thinking, it works for me.

Dan

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