When we were first taught about investing, the idea was to buy stocks and hold them essentially forever. That was great advice for our parents and grandparents, who knew little more than just following the herd. As America grew to greatness during the 20th century there were companies that grew to great heights, and if you grabbed their coattails your accounts rose commensurately.
I remember the days when my family would tell me to 'just buy and hold this or that forever, because stocks always go up'. In fact, just buy and forget, look at your portfolio when you retire and count the money. That complacent attitude worked fine in a previous era.
Warren Buffett buys into this approach, and it paid off handsomely during his heyday, creating the greatest wealth of any investor in history. There is no disputing the results. But the world changes, and when that happens we have to make adjustments. The buy/hold approach may not be the best way to build wealth today.
We are not talking about trading here - long term results just do not bear that out as a winning strategy. Yet, we have to stay in tune to what is happening in the world and how it affects our investments, and if that means clearing out some names then so be it. Stocks are pieces of paper that help us to create wealth. We become owners of companies that may excel, but some that falter.
We can fall in love with a story one day, putting our support behind that company, and then a devastating situation occurs to knock that company to its knees. Our investment theory is shattered, losses are immense and the re-building process begins. Could we have done something differently? Perhaps, or perhaps not. But buying and forgetting is not a good excuse today.
Look at the promise of GoPro (O:GPRO) a couple years back. We heard this company would revolutionize the industry, was far ahead of any competitor. The stock soared in 2014, building a market capitalization of over 13 billion dollars. At best they would take over the world in gadgets/media, or at worst the company would be acquired by a suitor - or so they thought.
The stock price has been cut down significantly, falling about 85% from its peak. It has been devastating for the long term investor who bought into the story. Twitter (N:TWTR) is another great example of this, too. The promise is sold to investors who display complacency and then get hit by a 2x4 when the stock suddenly takes a dive.
Could this disaster have been avoided? Quite possibly, by paying attention to the money flow, institutional buying/selling, the volume and indicators that precluded the catastrophic fall. Having an open mind and willingness to give up the stock and company could be the difference in achieving great wealth and losing precious ground and time.
This is not a criticism of investment choices, rather just a lesson about investment styles in the current environment. When you invest, KNOW your companies and be willing to let go if there is some potential danger on the horizon.