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Picture me pacing back and forth in the office, having a conversation in my head with my investing Gollum. That was me all week. If you don't know who Gollum is, stop reading too many annual reports and Seeking Alpha articles and watch some movies. We the intelligent long-term investors all have a Gollum who wants to keep those precious stocks and never sell. This past week, we spent hundreds of hours discussing and researching why and when intelligent investors sell their long-term investments. Just like how we invest in stocks, we also need a data-driven and emotion-free process for selling those precious ones. Here are the three selling principles every intelligent investor must follow:
Number Three: When you need the money!
It's pretty obvious. You have to sell when you need the money. Hopefully, you have planned your finances accurately so that you don't have to sell during a downturn. Nevertheless, it is pretty logical to sell when you need the money. Beats the hell out of picking up debt.
Number Two: When you have a better investment idea!
Many times we fall victim to our success. When a stock is steadily paying a few percentages points, or it is maintaining its original value without going much up or down, we fall into this slow rhythm of mediocrity. In those cases, you don't have to sell all of your stocks, but you may free up some cash and allocate it to other companies with a higher trajectory. I recently did just that with my shares of Graham Holdings. While it is still a good and steady company with an overfunded pension, I sold some shares, freed up some cash and plan to invest it in other well-run enterprises.
Number One: When the company is no longer worth it!
Nothing ruins a beautifully handcrafted portfolio than a gradually eroding business. Sometimes we invest in a company and never check the pulse on our investment in the name of long-term holding. We only notice the depth of the disaster when it has lost almost all of its value. It hurts me to tell you, but Tripadvisor hunted me for several days before I finally admitted it was time to sell. When in your annual portfolio review you come across a company that has changed colors from a well-operated, nifty business to a company with declining sales, or it has accumulated high debt, it's clear that the time has arrived to say goodbye to that precious. Remember, you can repurchase it when it recovers, but also use the loss to offset your other gain when you are filing your taxes. In other words, the most important reason to sell your long-term investments is to stop digging if you find yourself in a hole.
What has been on our radar?
As always, our community has been busy exploring new companies and stocks. Here is what has been on our radar in the past week. And, don't forget to submit your Stock Card request as you come across new companies and ideas... Let's go!
Alright, that's it for this edition of stock card weekly. To read the previous editions of Stock Card Weekly visit our website, or click on the Stock Card Weekly images at the top of All Stock Cards tab.
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