Selling to early?

[infinii]

As I look at the tickers of some stocks I've owned in the past 2yrs, I see some HUGE gains of stocks that I've already sold. I know, we don't hold crystal balls and hindsight..yada yada yada.

But I can't help thinking, "how do you guys determine a good price to sell at?"

I bought Apple (AAPL) at like 40 and sold it at 51. Excellent return IMO for only holding it a short term. However it's at 92 now

I bought Las Vegas Sands (LVS) at 50 and sold at 58. Today it's trading at 92.

In both these transactions, I thought I did a great job and sold when I did. My buddy who got into LVS in the 30's and is still holding it, chuckles each time he sees me.

I guess I'm the epitomy of "Sell too fast and hold too long".

Any advice? I am not savvy in regards to the financials, etc. I basically look for stocks that I think have a good product and good upside potential, then look to gain like 10-15%. Why 10-15% It's just one of those numbers that got ingrained in my mind from financial advisors who always seem to make promises that "if you invest such and such now and get 10% return annually...when you retire you'll be a millionaire". My problem is, the stocks that do give me the 10% return, seem to keep going up even after I sell. The ones that I suffer a loss on and hold onto, either fall further or sits as dead money.

 

[s_dooley24]

I think when you buy a company you should always buy it at a discount of what you believe/determine the true value to be. Not just b/c you think the stock price is going up (for momentum players). This gives you safety or a margin for error if you will. So if you have established that it is at a certain discount to your estimate this is one of the important numbers to remember.

Example stock A is trading at $40 a share

You believe it is worth $50 a share

So, it is in essence trading at 20% ($10) discount.

Lets say your thinking was dead on and the stock is bid up to 55 a share. This is where I would consider taking some of you investment off the table. But the huge thing people fail to realize is that you should only do this if you have a more attractive investment oppurtunity. I would look to fully pull back in your position once you approach 20-25% above your true estimated value.

 

[infinii]

Just for argument's sake.

if you have achieved your goal for that stock, why not pull back fully even if you have nowhere else to put the money? That way you're protecting your gains.

 

[s_dooley24]

Just for argument's sake.

if you have achieved your goal for that stock, why not pull back fully even if you have nowhere else to put the money? That way you're protecting your gains.

My goal is to buy a stock at less then their intrisic value and then have them appreciate to and possibly beyond that point. If I have no other investment oppurtunity more favorable (taking into account risk/reward, transaction costs) then I tend to leave the money in the stock. Granted I will take some profits. You shouldn't initially buy a stock that is overvalued (b/c you leave yourself no margin of safety), but to hold one that is slightly over vauled is not nearly the same thing.

 

[selkirk]

Great question Infinii, and answer Dooley.

agree with Dooley that you should look at your stock and figure the value of the stock. this calucaltion should change with earings/time.

many investors sell and even average down on their losers (never, never.) and sell their winners to early.

before going forward I have posted some stocks and yes after selling 50% (sometimes 75%) they just keep going higher. one stock after selling 50% bought back the position at a higher price...now that takes skill....lol.

if a stock is going higher in general, let it, for instant if a stock goes up 15%, you may want to set a stop on all of some of the positon. maybe if it drop 5-10% from your profits you will sell all or 50% of the positon.

however many times let a stock run, that wants to......

never sell a stock making a new high. worry more about stocks that are underperforming the index, or their group.

if you want to take profits never a bad idea, you can sell some, or maybe get back your orginal investment if the stock does reallly well.

good luck

thanks
selkirk

 

[infinii]

Hey guys, thanks for taking to time to answer my questions.

You shouldn't initially
buy a stock that is overvalued (b/c you leave yourself no margin of safety), but to hold one that is slightly over vauled is not nearly the same thing.

But why? If it's already overvalued then doesn't reason tell us that it should fall? If the likelihood is to fall from it's current over valuation, why not sell? I'd think that the possibility of dropping is greater than the possibility of going any higher.

I think what I need to do is start using those "stop" orders. That way I have the potential upside but limited downside and I can follow your advice of leaving it in there unless I have the need for the capital elsewhere.

 

[DOGS THAT BARK]

I'm a believer in Kirks last line-

"if you want to take profits never a bad idea, you can sell some, or maybe get back your orginal investment if the stock does reallly well."

Would love to have prob of selling for profit too early--as opposed to selling off losses too late.

on onother tangent--Would be curious to hear opinions on effects of the dollars fall vs other currencies.

 

[amhlilhaus]

first off, congratulations on the winning trades. the only thing it seems you did wrong is hold onto some losing trades. the crystal ball really doesn't work for losses, letting a stock go down significantly is much more damaging to your portfolio long term than selling a winner too soon, as most people won't sell a big loser and will let it sit there, dead money for who knows how long. I sell my losers at 10% no questions asked. if the market is healthy and you have a good stock it shouldn't decline for a 10% loss. if the overall market tanks you should still sell because who knows how low the market goes. if you still like the stock after the market starts recovering you then can get it for a cheaper price, but if you've let it drop and are holding it at the lower price with a 35% loss already, it takes a long while to bring it back even, if it ever does.

 

[kneifl]

Great thread

Great thread

I really like this thread and agree with most of what was said in it. All profits are "good" profits, however we always want more. I posted that LVS right when it was around 40-50/per share and now it has practically doubled. Still have some in my port but sold half of it a while ago when in the 70 range. It's bound to go up a little more.

FWIW, I think Yahoo is a very attractive stock right now and will hit 40 sometime in 2007.

kneifl

 

[s_dooley24]

FWIW, I think Yahoo is a very attractive stock right now and will hit 40 sometime in 2007.

kneifl

Agree that Yahoo is definately under-valued at the current share price.


Yahoo YHOO

Analyst Note 11-20-2006

Several newspaper groups, including Belo BLC, Cox Newspapers, Hearst, Journal Register JRC, Lee Enterprises LEE, MediaNews, and E.W. Scripps SSP, have signed a deal with Yahoo YHOO that will allow them to sell ads on the portal's HotJobs site, providing additional exposure for their local and regional job listings. The agreement also calls for the newspapers and Yahoo to potentially share content and search capabilities. We think this is an intriguing alliance, providing newspapers with more scope and attractive technology features for their own Web sites. In our opinion, this deal further highlights a rather meaningful shift in strategy for newspaper publishers: teaming up with a dominant Internet player. It comes just after several publishers inked a deal allowing them to sell ads through Google's GOOG site.

Thesis 10-30-2006

As competitors continue to innovate, forge partnerships, and make acquisitions, Yahoo has been seemingly stuck in the mud. Product delays, lackluster earnings, and a lack of headline acquisitions have disappointed advertisers, users, and shareholders alike. Google and community Web sites like MySpace, Facebook, and YouTube continue to capture market share at the expense of Yahoo. Furthermore, Google's advertising platform is superior to Yahoo's, resulting in better results for Google and advertisers. If Yahoo's new advertising platform does not perform as expected, the firm may never recover.

Despite its recent struggles, Yahoo remains the most popular destination on the Web, with 500 million unique users per month. Products with high switching costs--like e-mail and stock portfolios--should help retain a large portion of these users, while newer products like Flickr and Yahoo Answers should help attract new users. The company should also benefit from its operations abroad and recent venture into mobile advertising. A robust portfolio of products, nascent opportunities, and a history of surviving difficult times should allow Yahoo to continue generating economic profits for years to come.

As people spend more time on the Internet and less time on traditional media, advertisers continue to shift more of their dollars online. Boasting the largest online audience in the world, Yahoo has been able to capture a disproportionate share of this advertising, which now accounts for 85% of the company's revenue. Although Yahoo may currently be ceding market share, this could prove temporary as trendier Web sites eventually lose their appeal and fickle consumers move on. In the end, we think consumers will continue to take advantage of Yahoo's unparalleled number of free offerings, including e-mail, search, news, and maps.

Yahoo also makes money by charging fees for premium services, including extra storage and music downloads. As the creation and distribution of online content improve, we think consumers will be increasingly willing to pay for access to good content (akin to the adoption of cable television). Media companies will probably use Yahoo to distribute their content, as the company already has the necessary infrastructure as well as the largest user base on the Web. Besides generating fee revenue, the online distribution of music, videos, and television should provide Yahoo with additional advertising opportunities as well.


Valuation

Our fair value estimate is $34 per share. We expect online advertising to continue stealing share from traditional media, but at a slower pace. We project advertising revenue growth to slow from 41% in 2005 to 17% by 2010 as a result of competitive pressures and a slowing market. We forecast fee revenue growth to slow from 49% to 10% over that same time frame. Including the expensing of stock options, we think Yahoo will expand operating margins to 22% by 2010 as it expands its revenue base and reaps the benefits of its new advertising platform. Our valuation includes about $7 per share for the company's 34% stake in Yahoo Japan. Yahoo competes in high-growth, dynamic markets around the globe, so accurately forecasting revenue growth and margin expansion is difficult. Therefore, any discrepancies in our forecast may lead to significant changes to our fair value estimate.

Risk

If its new advertising platform does not perform as expected, Yahoo will have difficulty monetizing its user base at the same level as competitors, mainly Google. A prolonged period of underperformance may lead to an exodus of employees and advertisers. Chairman and CEO Terry Semel has a strong background in media, but we question whether he has the technical expertise to lead Yahoo in an industry where technology and innovation are vital.

See Previous Analyst Reports


Close Competitors TTM Sales $Mil Market Cap $Mil
Yahoo 6,224 36,032
* Microsoft 45,352 286,263
* Time Warner 44,532 80,745
* Google 9,319 147,200

* Morningstar Analyst Report Available | Compare These Stocks

Data as of 06-30-2006

Strategy

Yahoo invests heavily in content and technology to maintain its spot as the most trafficked network on the Internet. The company sells access to its user base to advertisers, while also selling premium services such as storage and music downloads to its expanding user base. Once users tap into Yahoo's network, the company aims to keep them by increasing their switching costs.

Management & Stewardship

In our opinion, Yahoo was well managed by CEO Terry Semel and his colleagues through the post-Internet-bubble era. The company not only avoided bankruptcy--a fate suffered by many dot-coms--but is now the most popular Internet destination in the world. For its efforts, management has been extremely well rewarded. In the past two years, Semel has unloaded shares worth more than $400 million, accounting for a majority of the $635 million in stock that Yahoo's top five insiders sold in that period. After this, Semel still held more than 18 million shares or options (mostly the latter) worth more than $200 million at the start of 2006. Yahoo's compensation policy seems somewhat excessive to us, although we do recognize that Semel has been at the helm while Yahoo has increased in value by billions of dollars. However, our confidence in Semel is faltering, as Yahoo has been lackluster on the acquisition front and slow in releasing new major products. Founders David Filo and Jerry Yang combined still own about 10% of Yahoo's shares, ensuring that they have continued influence on Yahoo's future direction. Yang remains on Yahoo's board, which is chaired by Semel.

Profile

Yahoo is the most popular Internet destination in the world, attracting 500 million users every month. Yahoo operates Web sites in more than 30 countries, including 34% ownership of Yahoo Japan. Yahoo offers its users numerous free services including search, e-mail, instant messenger, financial information, news, video downloads, and a variety of community platforms. Advertising accounts for about 85% of sales. The remaining 15% comes from fees on premium services.

Growth

After declining 35% in 2001, Yahoo's revenue increased 51% annually over the past four years. Profits have risen even faster, thanks to expanding margins. We look for continued strong growth in the coming years.

Profitability

Yahoo's margins have taken a hit, now that stock options must be expensed. We expect margins to climb in time, thanks to the firm's operating leverage. Return on invested capital handily exceeds Yahoo's blended cost of capital.

Financial Health

Yahoo's financial health is excellent. The company has far more cash and securities than debt.



Morningstar Rating
12-01-2006
4*

Stock Price
As of 11-20-2006
$26.72

Fair Value Estimate

$34.00

Consider Buying

$26.20

Consider Selling

$42.60


Business Risk

Avg

Economic Moat

Narrow

Stewardship Grade

C


Analyst Note


Bulls Say

As content providers look for increased online distribution, Yahoo's large user base and technology platform are very appealing. Additional content should attract more users.


The market for online advertising is growing very quickly as large advertisers are increasingly attracted by its measurability and its high returns on investment.


Yahoo has several properties--like its Web mail and stock portfolios--with relatively high customer switching costs, keeping users tied to the firm.


Yahoo is becoming as popular abroad as it is in the United States. This popularity is increasingly resulting in big profits for Yahoo.


Yahoo has loads of cash for stock buybacks, acquisitions of hot technology, or investment in new content for its Web sites.


Bears Say

A big chunk of Yahoo's revenue comes from search, a business with almost no switching costs. In addition, Yahoo has clearly fallen behind Google in search technology and users.


With the majority of its revenue tied to online advertising, Yahoo could see its performance fluctuate significantly in an economic recession.


Delays in its new advertising platform and a lack of high-profile acquisitions have led many to perceive Yahoo as a lethargic player in a dynamic industry. This could make it difficult to attract and retain users, advertisers, and employees.


The company faces stiff competition from AOL TWX, Google GOOG, Microsoft MSFT, and traditional media companies. Trendy community sites including MySpace, Facebook, and YouTube are competing for advertising dollars as well.


Yahoo gives away too much of its profits via stock options to its employees, in our view.

 

[infinii]

YHOO

YHOO

Does this management shakeup worry any of you?

http://www.businessweek.com/technology/content/dec2006/tc20061206_705035.htm?campaign_id=bier_tcc.g3a.rss1206a

 

[s_dooley24]

Does this management shakeup worry any of you?

http://www.businessweek.com/technology/content/dec2006/tc20061206_705035.htm?campaign_id=bier_tcc.g3a.rss1206a

Nope read that exact article this morning actually. They're doing a re-alignment of the company so they can focus and compete more effectively. Thank Google for that.