Weekly Wealth Digest New

Dear Member,

In last week’s Weekly Wealth Digest, we covered reasons to sell a stock. As promised, I want to follow up that essay with reasons NOT to sell. All of this of course relies heavily on you doing your due diligence before buying.

Here are My Top 10 Reasons not to Sell

10. The Company Reports a Bad Quarter, Even Back to Back

If the fundamental story is still in place and the company is undervalued, then this may actually be a time to buy. It takes time to see implemented changes hit the bottom line; however, most market participants are too scared to hold a stock longer than a few days, so use this as an opportunity to accumulate more shares.
Remember, a reaction to financial filings is a reaction to old news.

9. Sector is in a Bear Market

This is actually a great reason to buy, not sell. If you can find a great company that is discounted because its sector is down, then that is how you will get rich. Buying the top 5% of businesses in an industry that is left for dead, is a sure way to rapidly accumulate wealth.

8. A Bad Write-Up

A bad write-up about your company or the management goes viral. Hedge Funds often use ghost bloggers to attack a company that they are short, lies and market manipulation is the norm. Don’t believe anything you read, especially about a single investment; always verify everything for yourself. Don’t be shy about picking up the phone and asking to speak with an investor relations representative.

In a 60 minutes story a few years ago, a former hedge fund employee admitted that they had an entire team of people who where dedicated to go on message boards and make up lies about a company, trying to scare people out of a stock.

7. You are Worried about Global Events

You are worried about global events, war, currency collapse, and other things you can’t control. Good businesses have done well and held their own during wars, hyperinflation, deflation, and even regime change. Again, this all comes down to focusing on good businesses ran by honest people.

6. Position Size becomes more than 10% of Your Portfolio

I disagree with most analysts on position sizing, if a business you own runs, mind your trailing stop and let it run. Why cash out on a winner just because it went up… set a trailing stop and let your winners ride.

5. Inherit Stock

Dave Ramsey always tells these poor callers to hit the bid, but just because you inherited shares of a business shouldn’t be the reason to sell it.

4. A temporary Decline

Everyone knows the feeling, stomach pain and doubt, but that usually signifies the bottom is in and it’s about to bounce higher. Remember, the market itself is full of emotional buyers, is highly irrational, and is extremely bipolar. Never allow market sentiment to help you with your investment decisions.

3 Media Predicts a Crash

Unfortunately this never works out, today is a good example. The markets have fallen 3% from their all time highs and every story out is about the imminent summer collapse. Deserving of a correction yes, but since so many are now speculating that a crash will happen, I am pretty confident one will not happen. Choppy in August and September, but with so many predicting a crash now, I truly think it’s off the table for the short term.

2. Fear of Inflation is forecasting a currency crisis within the next 6 years. Many others are worried that severe inflation or even hyperinflation may be imminent, if you are one of them, don’t sell your stocks. Stocks have proven to be a great hedge against inflation. Unlike cash or fixed income, stocks are backed by real assets; fractional ownership in a business that can raise prices, owns assets, and in some cases it may be an enterprise that is needed by society (ex. toilet paper company).

1. Stock Remains Undervalued for an Extended Period

Buying an undervalued business is like buying a $1 bill for 75 cents, even if it takes the market years to recognize it. If you keep doing this, you can and should expect higher than average returns with a lot less risk.

In all of these suggestions on why not to sell a stock, the virtues of patience, discipline, and wisdom will need to be applied. A key to successful investing is to overcome your own emotions.

Have a prosperous week!
Daniel Ameduri