One of the biggest challenges for investors is taking action when it’s time to cut an underperforming stock loose. For most investors I talk to, the hard part isn’t admitting that they were wrong, but closing the door on the possibility of a turnaround. What if the stock rebounds the next day?—or rallies 50% over the next few months? Investors anticipate the regret they’d feel in that situation, and often avoid selling because of it.
But the fact is, most losing stocks don’t turn around and become “the ones that got away.” Most of them keep on doing just what they’ve been doing: going down. Today, we test that theory by taking a look back at every sale made from the CDI portfolio from inception in February 2014 to the end of April 2015. (Based on the assumption that it’s too soon to judge sales made within the last six months.) Sales are ordered by date, and all charts begin in February 2014.
One of the biggest challenges for investors is taking action when it’s time to cut an underperforming stock loose. For most investors I talk to, the hard part isn’t admitting that they were wrong, but closing the door on the possibility of a turnaround. What if the stock rebounds the next day?—or rallies 50% over the next few months? Investors anticipate the regret they’d feel in that situation, and often avoid selling because of it.
But the fact is, most losing stocks don’t turn around and become “the ones that got away.” Most of them keep on doing just what they’ve been doing: going down. Today, we test that theory by taking a look back at every sale made from the CDI portfolio from inception in February 2014 to the end of April 2015. (Based on the assumption that it’s too soon to judge sales made within the last six months.) Sales are ordered by date, and all charts begin in February 2014.
The Bottom Line
Long-term investors sometimes justify holding onto declining stocks because “they’ll come back eventually.” While that’s occasionally true, as Verizon and Digital Realty Trust prove, additional losses are usually in the cards first. And for every “one that got away,” there are going to be multiple Wal-Marts, Qualcomms—and even sometimes Seadrills—that make you wish you’d just bit the bullet and walked away.