The Don’t-Buy/Sold List

My Don’t-Buy/Sold list performed in line with S&P 500. I had the habit to keep tabs on the stocks I looked at but didn’t buy as well as the stocks that I sold. There are 63 of them on the list today. A reckoning shows that they performed in line with S&P 500 for the last twelve months, if equally weighted. In other words, my sell list has been a waste of time.

Going through the list, I wouldn’t have guessed it. If I had to make a prediction, the list upended would be more like it. The one that tripled is HWK, a friction material company.

Lessons Learned:

The Market seems to overvalue growth, or grant premium on certain stocks. If a stock grows at above market average, the market would value it at more than I consider it should be. Sometimes the P/E would shoot up to above 30X, or even 50X if the stock is really hot. I have not learned on how to play with those types. The takeaway is that hyper-valuation alone is not a good reason to sell—hold on to the choppers until there’s reason not to. Of course, it would be difficult to get out right on time.

Sold too early for lack of patience, valuation, or bad news. There are several stocks I sold, when it stopped moving for a while, or moved too much than expected, or when there’s bad news and selloff. Those several outperformed the S&P 500 30% plus afterwards. The motto is not to fret about short-term performance, but to recheck the thesis—easier said than done. Bad news could be opportunities to buy more. Of course, the turnaround may come really slow.

Fear would keep you from the best opportunities. I have missed several REITs that doubled. Looking back, I was overloaded with concerns on the sector—after all it was the epicenter of all the problems. But it turned out that it was one of the best places to be. Of course, I may well have had been trying to catch a falling knife.

Valuation would go nuts for no particular reason. There are ones without much earning growth, on an average growth forecast, but the price just went through the roof. Is there anything someone knows but I don’t? This is when you don’t learn.