Selling Sysco

There is no doubt that Sysco (SYY) is one of my long-time favorite companies in terms of the kind I would refer to as an infrastructure service industry - a company that behind the scenes provides food services and supplies to restaurants, hospitals and institutions throughout the United States and Canada. Thus, it was with great disappointment that on Monday I noticed that with the terrible bear market ravaging the best of stocks, Sysco had not been spared the onslaught and when it hit and passed my 8% loss limit, I sold my position.

On December 10, 2008, I purchased 154 shares of Sysco for my trading account at a price of $22.668. Monday I sold these same 154 shares when the stock had declined to $20.8216. This represented a loss of $1.85 or 8.15% since purchase.

I am as clueless as the next investor as to how far the stock market is likely to fall, whether it is a good time to be buying or selling my holdings, and whether it actually would be wiser to be buying shares of Sysco at these levels rather than executing a sale at this price level.

But this I do know - my own market investment strategy makes good sense to me. I believe it is necessary to limit losses to some acceptable amount, and that market forces dictate most of the price action of stocks rather than the individual stocks determining their own price course.

My investment strategy involves moving between a minimum of five holdings and a maximum of twenty, responding to market sales on losses by reducing my market exposure, and responding to stock appreciation by selling portions of those holdings at targeted levels. I also believe it is wise to use the actions of my own holdings to help me respond in some rational fashion to the irrational forces swirling around me.

Thus, with five holdings and with the sale of my Sysco stock now down to four holdings, I am 'required' to add a new position to my portfolio. But instead of replacing this holding with a position of equal size, I shall be adding a holding of smaller size, thereby once again shifting towards cash even as I replace a new stock for an old holding. Currently, after selling a holding when at the minimum, I purchase a new position at 1/2 of the average size of the remaining four.

Tuesday I found a stock that appeared attractive and once again moved up that minimum of five holdings while at the same time continuing to shift to cash in this difficult market.

Disclosure: The author sold his shares of Sysco.

Comments

[Robert Free...:]

Ed K.,

It was with great regret that I parted ways with Sysco (SYY). I plan on revisiting this one as a stockholder as soon as I can. In fact, I have slightly modified my own trading strategy to allow for a (12)% loss tolerance with these five minimum positions.

Long-term, it is useful to identify companies like Sysco that can generate consistent returns, revenue growth, and are not subject to the whims of fashion or cyclical trends.

Thank you for your kind words and I would encourage you to visit my blog where many more entries are posted and where I discuss some of my own struggles with developing a rational approach to investing in irrational times.

Mar 04 10:03 AM

[Larylar1:]

Sysco is one of those stocks that has been overrated for as long as I ca remember. I t isn't talked about much, but when it is, people talk about it in reverential terms. The truth is that even before the crash, the stock had not moved up at all since Dec 200, and while the dividend is growing, it is still nothing amazing. It is only now accidentally at 4.5%. as of 1 year ago it was about 3%. Thats what I'm supposed to get excited about?

Mar 04 12:32 PM

[jepittman:]

Sysco is a consistent performer in a chaotic market. The return on equity is routinely in the 30% range with a growing dividend. The company has a simple business plan that is executed relentlessly by a management that are themselves heavily invested in the business and is of high character (not something to scoff at in this world of Enron, Worldcom, Citigroup, etc.). Sysco has been the victim of a steady PE erosion over the last several years despite a rising earnings and dividend stream. I do not believe this is a company specific phenomenon. Wal Mart, Pepsi, and many others have suffered similar or worse fates.

It appears the author is a trader rather than an investor, as so many are these days. Nothing wrong with that. However as someone above has said, for a trader there is not a lot here to get excited about. Low beta, boring business, steady price decline, etc. For an investor however there are a few things to like. Low beta, boring business, increasing valuation (lower prices and higher earnings and dividends), trustable management, consistent dependable revenue streams not generated by 20 to 1 leverage. One other thing. Sysco flys below most radar screens and is rarely mentioned in the financial media. A very good thing these days.

Disclosure: Long Sysco for many years.

Mar 04 08:27 PM

[Robert Free...:]

JEPittman,

Thank you for your fine comment. I also appreciate the consistency in Sysco's results for the past many years and believe the future remains bright for this food/material supplier.

For clarification, I am neither a trader nor an investor, if you mean to define those terms by one willing either to step in and out of stocks for short-term price changes as opposed to a long-term investor who buys and holds regardless of price movements.

I try to be an intelligent investor.

That is, I am not blind to the effects of the market on my own holdings. I would prefer to own stocks for years on end, but I have chosen to part company with them should they disappoint which for me is a reflection usually on the investing environment and not the stocks themselves.

Thank you for your comments. I look forward to reading more of them and would encourage you to visit my blog to get the larger picture of what and how I do my investing.

Mar 05 07:47 PM