4 More Reasons Not To Sell A Stock

Includes: AAPL, SO, T
by: Tradevestor

Since a prior article titled "4 Reasons Not To Sell A Stock" was well received by readers, this article tries to add more insights on the same topic.

While everyone is welcome to read this article and contribute positively in the comments section, it targets long-term investors and not short-term traders. Some of these "don't sell" reasons may not apply to traders.

Let's get into the details.

Reason No. 5 -- Temporarily High P/E: Before getting into the details, take a look at the chart below first. It shows the current P/E ratio of a company jumping about 7 times since 2010. A red flag? Maybe. But enough reason to sell? Not until you look at the details.

The chart below belongs to AT&T (NYSE:T), and people who go even slightly beyond the headlines know the sudden jump in P/E is because of the failed T-Mobile merger and that the P/E will eventually return to its midteens level sooner than later. Sure, if AT&T -- or any company for that matter -- goes on an acquisition spree and ends up burning cash continuously, it's a cause for concern at that stage. The point is to not trigger the sell button right at the sight of an expanded P/E (or any other metric for that matter).

AT&T was specifically picked as an example here because some Seeking Alpha readers have expressed their concerns about paying 50 times earnings for a company that is expected to grow earnings roughly 10%. Stay calm. You can do much worse than staying with this powerhouse that also yields 5% even after the recent run-up in stock price.

Click to enlarge image.

Reason No. 6 -- Grass Is Greener: Remember the analogy used in the previous article mentioned above. You move from lane A to lane B and lane A all of a sudden "seems" to be moving fast. Do not stock-hop. To use an analogy from Seeking Alpha contributor Dave Crosetti: "You take a date out. You see your old girlfriend there with someone. Your new girl is not as pretty as your old girl. But guess what? The new girl is the one you brought to the dance."

The point is not to never dump your losing stock, but not to jump just because another appears slightly better right now. Though it might be impossible each time, the idea is to build your portfolio with "the best" stocks in your opinion in the first place, so that you do not feel the need to jump repeatedly.

Reason No. 7 -- Expert Opinion: Steve Forbes famously said, "You make more money selling advice than following it," and boy aren't the investment advisors appearing on television shows especially taking full advantage of it. With all due respect, most of the "experts" you see on TV and other media are probably paid to pump up a stock. And you can't be sure of the disclosures as well.

It would be in your best interest not to rush in and out of stocks based on the changing opinion of the experts every day. Before you realize, you will end up racking up transaction fees and a big tax bill at the end of the year, if you make any profits at all.

Reason No. 8 -- Di-worsification: This point might irk people who believe in diversification. But hear it out. It's alright to rebalance your portfolio regularly if a particular stock is overweight. But it's risky to sell stocks you understand (assuming) and own already just to get into all possible S&P sectors.

For example, during its magical run early this year, Apple (NASDAQ:AAPL) must have been one of the "most overweight" stocks. Sure, Apple could have crashed and one could have lost a lot of money. But the point is, do not get into stocks you do not understand just because of diversification. If your stock is doing fine, let it run till the story changes. Do not sell Apple and buy a utility, say, Southern Company (NYSE:SO), if you have no idea about/interest in utilities.

Disclosure: I am long AAPL, T.