This is probably the toughest question an investor must answer: How long do I hold my stock?
When you are making a paper profit, feel that you have selected the right stock and want to keep it. You certainly don’t want to cash out your 10%-20% profit and realize that your stock will do as well as MCD for the past 10 years!
On the other hand, when you are have a paper loss, feel that you have selected the right stock and you want to keep it… Wait, I just wrote the same thing twice, right? Ah! That’s because regardless if you are making money or not, when you bought the stock, you thought that you would be making profit on it! It hurts to see that you haven’t made the right decision. It hurts your wallet but also your investor ego. As long as you are holding your positions, you may ignore the paper loss thinking it is just a rough moment. You close your eyes and pray for good news.
This is Where I Am Right Now
I recently updated my dividend holdings. You’ll see 3 things if you look at it:
#1 I’ve sold my Covered Call ETF and replaced it by Seagate Technologies (STX).
#2 I still own shares of 1 non-paying dividend stock: 5N Plus (VNP).
#3 My position in VNP is hurting my portfolio very bad (the stock is down 75% in the past 12 months).
Should I hold this stock? Or should I sell it? This is where I am right now… tough decision.
Trying to Rationalize my Decision
I have been investing since 2003. I’ve had some great trades (after all, I bought my first house with the proceeds of my leveraged portfolio!) and I’ve had my share of bad moments too. But for some reason, selling a stock is not getting any easier with time!
When I bought VNP, the company was liquid and making great profits. I believed (and still do) that solar energy is part of the answer to long term energy consumption. Then, they bought a European company five times bigger than themselves. At that time, it was a great move since they were diversifying their activities and sources of revenues. Prior to this transaction, they had one client (First Solar) generating 80% of their revenues. At one point, I even thought I would cash out a nice gain since VNP would be most likely bought by First Solar. But this never happened and VNP suffered greatly from the European recession. The company they bought was operating on that continent only.
They declared their first quarterly loss this year. This was a big shock to the stock value. Then, when they were heading into the black again, they hurt their stock again by issuing more shares. So the fundamental reason why I bought this stock (their leader position in their market and the potential of solar energy) are still there. But new information is coming into play (higher level of debt, European recession).
On the other hand, I’ve already passed through the point of no return; I have an average cost of $6.84 and the stock worth $2 right now. I think I’ve lost what has to be lost in this case. I’m tempted to sell the stock and move one but I still believe there is a chance to get more money for my shares. Selling during a volatile market doubled by a recession in the company’s main market is not clever. This is why I will hold my position for now.
The only thing that frustrates me is that this is my only big loss. The rest of my portfolio is doing pretty well but VNP is erasing all my profit… and even takes my account into the red this year!
What would you do if you were me? How do you handle the selling part of your portfolio?