Roger Nusbaum submits: One stock I own personally and for clients is Novartis (NYSE:NVS). It captures many effects including Switzerland, mega-cap, pharma, low-beta and predictable growth (it looks more like a growth stock to me than a value name).
Because it is such a big name on the global scene and so widely followed it is easy to keep track of what is going on with the company. Because it is such a low octane name I find myself not needing to keep very close tabs (this is relative) on the share price. This morning I noticed that it went above $60 for the first time yesterday, making a new all time high.
YTD the stock is up 15%, ahead of the market and ahead of the sector as measured by iShares DJ Healthcare Index Fund (NYSEARCA:IYH). Admittedly some of the lift in NVS can be attributed to the dollar being down about 5% vs. the Swiss franc YTD.
In a diversified portfolio you would expect a mix of stocks that are ahead of the market and stocks that are lagging. One point of this post is that to me this type of action is exactly what investing longer term is all about. This is not a tout for Novartis, it is a tout for long term ownership for a company you believe in. It is not all roses all the time of course. During the spring correction NVS dropped 10%, much more than the market. I did not think about selling, I would say that all stocks have bumps in the road now and then.
This brings us to Caterpillar (NYSE:CAT). It is a name I have owned for clients for several years. I disclosed selling half the position back in the spring thinking an economic slowdown was in the offing. Reducing industrials in front of a slowdown is really a by-the-book type of trade. The mind set needs to be similar, but the stock also needs to be understood. A stock like CAT is capable of going down a lot. I don't mean in one day, which is obviously the case, but over a longer period of time. If you are 100% buy and hold then you need to really grab on to the idea that industrial stocks have periods of serious volatility in both direction.
The trade to lighten up looks good, but the decision to keep half looks bad. For a few months (or longer) CAT's growth rate is going to be slower than some were previously expecting. The company is still a big big fish in its pond, and will likely be a big big fish when growth for the entire industry starts to accelerate again.
If you are investing toward some goal in the future you probably should not focus on today or next week or next month or even next quarter. Both stocks listed in the piece will have time periods in the future when they lag and lead.
One last point: This is not to say that stocks should never be monitored, reviewed, and possibly sold outright, but people selling CAT today are probably more driven by emotion than logic.