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When Buy and Sell Works Better than Buy and Hold

Buy and hold is what we’ve been taught as long-term growth investors. But to make money on more volatile stocks, a buy-and-sell approach is essential.

Urban Outfitters (URBN) is a global apparel retailer with a high-profile string of brands—Urban Outfitters, Anthropologie, Terrain, Free People and even a food and beverage division—and a history of rising and falling with the fortunes of the retail sector and its own grip on trends in fashion. And that makes it a good candidate for buy-and-sell investing instead of buy and hold. Let me explain.

I know Urban Outfitters has the chops to be a leader in the stock market because URBN has been featured 17 times in Cabot Top Ten Trader, which is kind of a Good Housekeeping Seal of Approval for growth stocks. When a company’s name repeatedly pops up in Top Ten, it means that the total package of its story, its fundamentals and the chart of its stock have pushed it to the head of the pack among all stocks at that time.

In the issue of Top Ten that came out on Monday, there was Urban Outfitters, buoyed by a strong quarterly report on March 6 that featured record sales in the fourth quarter. The 6% increase in revenue was the strongest climb in more than two years, and the 21% bump in earnings came after losses in four of the last five quarters.


Even more important, the company seems to have improved its in-store product selection, getting better attuned to the whims of its young consumers.

If I were just trying to make a case that you should buy URBN, I would probably use a chart that showed the stock’s latest rally, like the one below.

This chart makes a great case to buy and hold Urban Outfitters (URBN). But it doesn't tell the whole story.

I’ve got to admit that that’s one handsome stock chart, especially if you start from the August 2017 dip-and-bounce. A climb from 17 to 38 in less than eight months isn’t to be sneezed at.

But while I think URBN really is a good buy here, especially with its three-month flat base from January through March and its breakout earlier this month, my real point is that the company has presented opportunities for investors for many years, as long as they didn’t try to buy and hold it for extended periods of time.

When Buy and Hold Doesn’t Work

Here’s a long-term chart of URBN that goes back to its rocket-shot days of 2003, when retail was still mostly brick-and-mortar and the company’s position in the style hierarchy was untouchable. The company’s mix of casual, outdoor-inspired clothing for young urbanites was right on target, and URBN was featured three times in 2003 and twice in 2004.

Unfortunately, as you can see in the chart, the wheels came off in late 2005 and the first half of 2006. Any investor who stuck with the stock during that correction would have found themselves with a severely trimmed profit. Dips from 34 to 13 will do that.


The chart also shows URBN’s up-and-down behavior in the year after that. If you had bought URBN at 34 in November 2005, your position would have been flat at the end of 2017.

But during those 12 years, growth investors could have found multiple opportunities to buy and sell URBN: meaning, jump in during its multi-month rallies and jump out again when it rolled over. That’s the real message in the stock’s repeated appearances in Cabot Top Ten Trader, including its three designations as the Top Pick in 2012, 2015 and 2017.

With a volatile stock like Urban Outfitters, you need to formulate a method for identifying strong uptrends that are supported by positive revenue and earnings trends and constructive stories.

And then you need a way to figure out when to sell and take profits. And that’s where Top Ten really shines, because the advisory gives you a buy range for every stock, then follows the stocks that fall into their buy ranges and tells you when they have lost momentum and should be sold.

Buy and hold is fine for some stocks. But for growth investors who use their freedom to get into and out of the market as a major advantage, there’s much more to be done … if you have a trusted advisor on your side.

And for decades, that trusted advisor for many growth investors has been Cabot Top Ten Trader. If that sounds like a good deal to you, then click here to get started.


Paul Goodwin is a news writer for Cabot’s free e-newsletter, Wall Street’s Best Daily.