Resisting The Urge To Sell Winners (or Pinners)

As mentioned in my last post, the overall economy and stock market should not color one's views on individual companies. I've made this mistake in the past. Big time. I owned Illumina at $10 and sold at $20; then I bought it back at $25 and sold at $40. Those were cute gains. I missed the real, multi-year move to the 300s. 

There was never any reason to sell shares in a business that was executing well and growing exponentially.

I think there's a tendency for smart people to expand their analysis as they learn. This is a good thing. I like to learn and I'm also a skeptic / contrarian / questioner. All of that resulted in my becoming interested in the worldwide economy. But after a while I could not shake the bearish view of things. And in general, there are a lot of reasons to be bearish. Artificial growth induced by the Fed, debt to GDP ratios, high valuations, and oh yeah a global pandemic.

But, these are cocktail party notes and also lazy oversimplifications that, after a while, are not very interesting. Yes all that is true and it bodes poorly for movie theaters. But what about truly disruptive companies and technologies that are gaining share in all this chaos? What if tech is no longer a sector but an engine of dramatic changes or exponential growth? We can splice genes and use artificial intelligence to stop cyber attacks and set up online stores in minutes from computers that fit in pockets. These are secular trends and the pandemic is accelerating trends. The difference between winning and losing in business is becoming very stark. 

I'm not saying this is good. It just is. And if there are winners and losers, I want to be on the winning side.

PINTEREST

In late May I bought Pinterest (PINS) stock. What intrigued me was that commerce was moving online rapidly and yet PINS was still 40% or so below its highs. The stock was still in the dumps. A lot of people, myself included, were looking for a retest of lower levels. But when I looked at PINS I thought hey, this stock has already crashed. Isn't the risk to the upside?

Pinterest had made a deal with Shopify so that businesses could more easily translate their pins into sales. That seemed interesting. International growth was starting to gain traction. Also interesting. Finally, the stock had only been public for a little more than a year, and was below the IPO price. 

Last week PINS reported earnings and growth was outstanding, especially among a younger demographic. The stock went up 40% in a couple days. That's disruption. I'll be honest -- I don't get Pinterest personally, I don't know what to do with those pictures. But it's working for people and for businesses.

These are not normal moves and these are not normal times. But it's a very interesting time to invest. For optimists only. 

Five years ago, I would probably have let my bearish macro view influence all my investment decisions, and even worse I could have bought frustrating market puts. While the market may crash again (and maybe it should!) I think the better mindset is to look for opportunities to add to great companies rather than sell for small gains. A $500 gain (for example) is nice, but it doesn't move the needle. And over time, that $500 may not compound anywhere else. Over, say, 10 years, I may have the chance at exponential gains if I hold good stocks. So, I am literally fighting the instinct to take small profits on my winners. The goal is to let them run and add to them opportunistically. I still have a good cash cushion for this reason. 

Don't get me wrong -- I do not like the overall stock market right here and I am not fully invested in the indices. But I don't need to be when PINS is cruising in the meantime.

The purpose of this post is not to brag about winners. It's actually a warning to myself. I could sell partial positions to appease myself but I do not want to wake up in 10 years, find PINS at $200, and wonder why I sold too soon at $35. 

The market will try to shake people out of good positions. As I finish this post up, on Friday the 7th, tech names that have been hot are getting battered. One of my favorite positions, Crowdstrike, is down 15% in a couple days. It's important to remember the difference between a bad stock pick and volatility. Stocks that go up 100% in a few months will correct by 20-30%. If you believe in the company, you can add to your position. If you don't, you shouldn't be holding it anyway. 

There's a life lesson here that I'd expand on if I weren't tired this evening. Life is volatile. You'll never wake up to perfection. But that should not be confused with choosing the wrong path.