They Don't All Go Up

...At least not right away. Unfortunately, not every stock we recommend (or buy in our personal accounts) immediately goes up. We thought it was worth sharing our thoughts on what to do when a stock you’ve bought goes down.

There is an old adage among investors that you should “Sell your losers and let your winners run.” We don’t disagree with letting winners run--subject to the caveat in the next paragraph--but we would advise against a knee-jerk sale of any stock that is down. This is especially true in dealing with turnarounds or other deep value situations. Because turnarounds often take longer than you expect, patience is especially important in this type of investing. It is important to have a longer-term view even though most other investors may be focused on short-term results. Few things are more frustrating than selling a stock just before it finally turns the corner and takes off.

The key to making good decisions about underwater stocks (as well as stocks with gains) is to evaluate the future prospects of each stock based on all that you know about the company at this moment in time. Investors must consider their own tolerance levels when it comes to both potential future losses and upside if, indeed, the turnaround is successful.

You need to figure out what is the risk and what is the reward potential in each stock right now. As hard as it may be to do, you should ignore what you paid for the stock. You can’t get the purchase price back--instead you have to figure out where the stock is going from here. (The only time the purchase price is relevant is when you are doing tax planning, at which point you need to think about taxable gains and losses.)

For example, take a stock trading at 10. Investors who bought it at 20 probably think it is a terrible stock to own while investors who paid 6 for it may love it. The key question is “Where is it going from here?” If it is likely to go to 16--a 60% gain from where it is now--you should hold it or even buy more regardless of what you paid for it in the past. Conversely, if the current information suggests that the stock will drop to 8, you probably should sell it.

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Boston Beer Company--Time for Investors to Step Up to the Bar?

Boston Beer Company is the nation's largest craft beer company, with 2017 revenues of over $900 million. Since its days as a start-up in 1984, it has led the nation's growing taste for craft beers; and shareholders have enjoyed tasty returns along the way. So why is The Turnaround Letter--which focuses on out-of-favor companies undergoing major positive changes--even thinking about this ostensible "growth" company? 

Read More.

Harnessing Activists to Help Find Turnaround Stocks

Activist investors often produce attractive returns for their clients; and you can still use their influence to help your position as a turnaround investor in two ways: Buy a position in a stock with the expectation that an activist will soon follow or buy after an activist takes a stake.


Value Investing


While one of the many dozens of activist funds might find their way to selecting your particular stock, this approach is likely to be frustrating and unrewarding. A better approach is to buy after the activist makes their move. Once an activist takes a stake in a company, how do you evaluate whether it is worthwhile to follow on? Admittedly, this is a bit of an art... Learn how you can harness the power of activist investors to find market-beating turnaround stocks.

Turnaround Letter Stock Pick Named Top Performer of 2017


stock market advicex


What Last Year's Top Stock Pickers Are Buying in 2018


This Forbes write-up follows up on the recent Top Stock Tips report--naming The Turnaround Letter's Crocs recommendation the top performer of 2017: With 90% gains, CROX beat out 100 other investment ideas included in the report; and the stock continues to have value investing appeal, according to Putnam.


George notes, "We see additional upside for the stock in 2018 as management's efforts continue to bear fruit, though the gains will likely be more muted than we saw in 2017."