Column: Is it time to part with a stock?


Commentary by Joe Clark

Investing triggers many emotions; especially when there is a personal attachment to a company and its stock. Personal attachment to companies – especially to former employers or businesses associated with a favorite hobby – is understandable but financially dangerous.

During the late 1990s and early 2000s I owned a Harley Davidson motorcycle and Harley stock. We traveled the nation’s highways and attended many rallies including the 100th anniversary celebration. I kept the memories, but not the stock. When conditions change, investors must be willing to part with investments.

The notion of selling a stock runs counter to what many people believe is prudent because of taxes and transaction costs. While both are valid considerations, there are times when it is wise to part ways with a company’s stock.

Just because you sell a stock doesn’t mean you can’t buy it back if conditions change. Legendary investor Warren Buffet at Berkshire Hathaway appears to share this view. Buffet is known for his long-term perspective and is not in any fashion a short-term trader. Instead, his team looks for opportunities that include new investments as well as companies formerly owned.

A few years ago Buffet owned shares of Phillips 66, an oil refinery that had gone public. Buffet’s team wanted to outright own a portion of the company and sold their shares to buy that position. But Buffet recently announced he had reacquired a 10 percent stake in the company. The market landscape had changed.

Viewing an investment portfolio during times of market volatility makes it tempting to base decisions purely on price, but price shouldn’t be the overriding factor influencing a sell. It is important to ensure the current trajectory of the economy is supporting a company’s business model and that the company’s management is executing effectively.

Certainly, investors should be aware of taxation and transaction costs when making changes. But these factors shouldn’t compel an investor to hold poorly performing stocks over the long run. Ignore that little voice that says, “As soon as (company) gets back to (price) I will sell.” Things change and it’s an investor’s job to recognize those changes.

Joseph “Big Joe” Clark is a Certified Financial PlannerTM and the Managing Partner of the Financial Enhancement Group, LLC, an SEC registered Investment Advisor.

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