Submitted by George Putnam, III as part of our contributors program.
Pigs Get Slaughtered
I recently suggested investors unload Delta Air Lines (DAL) stock, resulting in a 227% increase from its price at the time of my October 2011 purchase recommendation. I advised Delta’s sale after the Company reported good numbers and saw a nice rise in stock price. Although we’ve been enjoying this very good gain in DAL’s stock—and there’s always a temptation to ride all the way to the top—I wanted to follow my own contrarian investing advice: Sell when they want to buy and buy when they want to sell.
Investors know that it’s always easier to sell a stock when it is going up–the more people who want to buy your stock, the better the price. I also strongly believe that it never pays to be greedy when it comes to the stock market. There is an old Wall Street saying, “Bulls make money; bears make money but pigs get slaughtered.”
Investors who consistently pursue a bullish long-term strategy can make money, as can investors who consistently apply a bearish strategy. The investors who do poorly—i.e.”get slaughtered”—are those who are greedy and who always chase the hot stocks or hold onto stocks too long.
You will almost never be able to sell a stock at exactly the right time—just as it peaks and starts to go down. If you try to do that, more often than not you will find yourself selling just as everyone decides to sell too and the price is falling like a rock. All of this said, selling is rarely easy.
In fact, I generally find selling much harder than buying. It is frequently pretty easy to spot a stock that is undervalued, but you may have to wait a while for other investors to realize how cheap your stock is and bid it up. If you’ve done your analysis correctly though, they eventually will. I often find it difficult to determine when a stock is getting fully valued. When a stock is rising, that usually means that there are a lot of smart people who have good reasons why they think it will go much higher still . . . and they may be right—for a while.
That is why I often recommend selling stocks that are performing very well—like DAL. One of the keys to making money in the stock market is being content with taking solid profits and leaving the pigs to fight over the last few points. I’m content with Delta’s 227% return rate, which made this company the newest member of my value investing newsletter’s “200 Club.” Of course, not all purchase recommendations perform so well, but this list reflects Turnaround Letter stock picks that have achieved returns of 200%—or better.