Next Investors logo grey

Ride the market or sell now?

Published 03-JUL-2020 14:46 P.M.

|

2 minute read

Hey! Looks like you have stumbled on the section of our website where we have archived articles from our old business model.

In 2019 the original founding team returned to run Next Investors, we changed our business model to only write about stocks we carefully research and are invested in for the long term.

The below articles were written under our previous business model. We have kept these articles online here for your reference.

Our new mission is to build a high performing ASX micro cap investment portfolio and share our research, analysis and investment strategy with our readers.


Click Here to View Latest Articles

There is an old saying that we learn from our mistakes. But if this is true, why do people continually make the same mistakes believing it will be different next time?

It is not unusual to see portfolios with losses on individual positions of between 50 and 90 percent, especially in times when the market has had significant falls like we experienced in March of this year.

Obviously, large losses on individual stocks can have an extremely negative impact on the overall performance of an investor’s portfolio. When I question investors why they continue to hold these stocks, invariably the argument is that these good stocks will rise back up to their previous value. But this raises two questions: firstly is the stock really a good stock and when will it rise back up to where it was?

When stocks fall heavily in price, the investor is attempting to ride out the market, but is this the best move particularly when they are potentially losing capital and the opportunity to invest their funds in other assets that are rising. What is interesting is that investors will happily ride out a losing stock rather than liquidate it for fear of losing. However, they will gladly sell winning stocks too early for fear of losing the profit they have already made.

Telstra is a perfect example of why the old adage of ‘buy and hold’ is an inefficient strategy and why investors would have been better off selling their shares rather than holding.

By November 2010 Telstra had fallen from its high of $9.20 set back in February 1999 for nearly 12 years into a low of $2.55. It then rose up to $6.74 by February 2015 only to fall back down to $2.60 by June 2018. Yet people continued to hold onto Telstra in the hope it would get back to its previous highs.

This week I reviewed the top 20 stocks in regards to how often they closed higher than they opened for the year. And yes, you guessed right, Telstra was not good on that front, as it only closed higher than it opened for the year 50 percent of the time.

If we look at the last six years, Telstra has closed lower than it opened in five of those years, yet people held onto it in the hope of making money.

The goal to investing wisely is to always preserve capital, as this in itself would improve the portfolio performance of the majority of Australians holding stocks, which can be achieved by simply applying an exit strategy.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online at www.wealthwithin.com.au



General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

Publication Notice and Disclaimer

The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.

This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.