delrinson wrote: ↑Fri Nov 10, 2017 8:06 am
Though I will tweak here and there, I am comfortably settled in with an AA consisting of bond, stock, and REIT index ETFs...and some Berkshire Hathaway.
But I'm holding on to my shares of Sears. Why? As a reminder of my susceptibility to making dumb decisions.
A few years ago when Sears dropped to the "bargain" price of just under $30 a share, and convinced of the value-in-the-commercial-real-estate thesis, I bought 75 shares. At market close yesterday Sears was at 4.60 a share....I'm down 85%.
But, hey, it's just a paper loss, right?
Who knows?
Maybe some day, long after the retail business goes belly up, the value of the real estate will be unlocked and I can sell for $100 a share. But I think it's just as likely that shareholder value will be wiped out.
Whatever happens, I'm hanging on to Sears. Not because I think it's a good investment. But because it wasn't...and isn't. It will sit in my portfolio as a monument to my errors in judgment.
ok, let's take these three one at a time:
1. paper loss? As in until you sell it's not real? Well, this may be true about owning the entire market, but not about owning individual stocks. Why? Because a stock you own can go to zero whether you sell it or not. Remember Enron? That wasn't a paper loss. That was an entire and total loss. Meanwhile, the only way the entire market can go to zero is if the world comes to an end. Yes individual markets have gone to zero (Germany, Russia, etc.) but if you invest (rather than speculate/gamble with individual stocks) then you own ALL the markets, not just one. So in order to go to zero someone who owns all markets would have to have all markets go to zero. Not impossible, but not highly probable. The probability of a stock you own going to zero? Much higher.
2. Why do you think the value of the real estate isn't already baked in to the price of the stock right now? Why would you think a stock would be worth more because of its real estate after the business goes belly up? That doesn't make sense. Warren Buffett used to buy companies for their intrinsic value or below intrinsic value so that in the worst case if the company went bankrupt he'd make back what he invested through the sale of assets. But not that he would make way more if a company went belly up. You're hoping the company goes from $4.60 to $100 a share AFTER the company goes bankrupt? Where are you coming up with these numbers? If the company would sell for $100 after it goes bankrupt, then shouldn't it be worth that now? If that's the case, then shouldn't you be buying more shares now that the price is only $4.60 a share? See how your logic doesn't hold up? And by the way, Warren likes to own preferred shares when possible that way he can get some value out of businesses should they go belly up. You as a common stock holder will be left holding the bag. The creditors and bondholders will get paid back out of the sale of the real estate and other assets before you. You likely won't see a dime.
3. Why let it sit in your portfolio and not sell it at a loss to either: 1. reduce taxable income ($3000 per year until the total loss is used up) or 2. offset gains from selling other assets that have increased in value. The question is, "If you didn't own the stock now, would you buy the same amount of shares you own now at the current price of $4.60?" If the answer is no, then you should sell it. If the answer is yes, then you should hold on to it. If you wouldn't buy more then you don't really want to own it. If you don't want to own it, why hold onto it? Sell it and move on. You don't need a constant reminder of a bad decision. You can remember it without holding on to it, can't you? Take the loss and use it to your advantage to reduce taxable income or reduce taxable gains from other appreciated assets sold.
What do you think about that?
"Invest we must." -- Jack Bogle |
“The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein