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moneysense.ca, 23/07/05
Selling the Losers
As a novice investor, I bought JDS-Uniphase (TSX: JDU) and Nortel (TSX: NT) just as the tech bubble was bursting. In hindsight, buying these companies with no profits in a highly competitive business was a big mistake. I kept these losers only because selling them would have triggered penalties for exceeding the foreign property content.
The 2005 federal budget eliminated the foreign property rules for RRSP accounts. So, I finally bit the bullet and sold my entire positions in JDU and NT. These equities were such a small portion of my portfolio that even a 5-fold increase in value would only make a small difference to my overall returns.
Moral of the story: Don’t buy crap; Sell the losers and ride the winners.
moneysense.ca, 23/07/05
I read in one of the investment books of shirking the losers and backing the winners!
Nortel will right itself eventually, in some fashion or another (JDS is fodder for someone’s cannon), but I only hold stock because I am an employee. I took my losses a while ago (and got a large kick back for capital losses). I broke even at the end of it all, but I always feel sorry hearing from friends how much they lost backing my company. It taught me to back companies that I understand, and saying, “It’s up because I don’t understand?”, is when I should sell.
–C8j
CVRK: Let your winners ride… is a Wall Street saying.
Big Cajun: Maybe Nortel and even JDS will bounce back. I don’t want to bet more money on that though. Even if they return 500% from here, it won’t make more than a few basis points difference to my portfolio returns. Better to sell and move on.
One more thing: my policy is never to invest in my employer. Yes, I take part in the ESPP program, but I will be disciplined and sell immediately. I’ve already been burned once. Held employer stock, stock fell off a cliff and surprise! surprise! I was looking for a new job.
Rather than selling the losers and riding the winners, might I suggest not getting caught up in fads, focus on cash flow and tell everyone else to go to hell
Just an idea
Josh: Absolutely. Fortunately, I now pay all my attention to free cash flow, return on equity etc. for profitable franchises.
I sold my losers because they were such a tiny part of my portfolio that it was not worth following them.