Buy, Sell, or Hold?
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Three of my favorite stocks -- Ancestry.com (NASDAQ: ACOM), Lululemon Athletica (NASDAQ: LULU) and MAKO Surgical (NASDAQ: MAKO) -- all jumped more than 10% early this week. ACOM posted strong sales growth, LULU raised fourth quarter earnings expectations, and MAKO boasted strong revenue growth.
Some of my friends have asked me what they should do with their positions in these stocks, so I figured I would make a blog post about it (kill two birds with one stone!). I have two unique pieces of advice for two different types of investors -- people who already own these stocks, and people who do not.
People who already own ACOM, MAKO, LULU
If you already own these stocks, you can buy more, sell, or hold. After such a big price jump, isn’t it the right time to DO SOMETHING? Let’s take a look. There is a valid argument for each option. Buy more: The stock is going to keep going up, so you should buy more. Sell: 10% + gains are pretty good, time to cash in! Hold: The stock could either go up or down, but I still like it for the long run.
They say “buy and hold” for a reason! My advice, if you’re a long-term investor, is to hold. In my opinion, if you add more to a stock that has already increased in value significantly, you may be allocating too much to this stock. In other words, don’t put too many eggs in one basket. On the other hand, I am also recommending for you NOT to sell. Selling the profit in these stocks and reinvesting in other stocks (or keeping the cash in a checking account) would reduce your overall risk. But with lower risk comes lower reward. The reason I recommend against “buying more” is not that I think these stocks are more susceptible to go down, but because it would create inappropriate allocation. Furthermore, I still really like these stocks for the long run, so you should continue to maintain a position for each. In conclusion, holding on to your investment provides for a happy medium between buying more and selling, which in turn results in the best risk/return proposition.
People who do not already own the stocks
If you don’t already own these stocks, you can’t sell or hold them (captain obvious here!), but you can choose to buy or not to buy. My recommendation is to buy. Like I said before, I like all three of these stocks for the long run. Unlike people who already own these stocks, those who do NOT own them do not have to worry about over allocating. Many people avoid investing in companies after price jumps, but I wouldn’t be wary with these stocks. Price jumps that result from ethical issues such as accounting standards or management fraud would fall into the “stay away” category. In contrast, price jumps resulting from good earnings and revenues are not major reasons for concern.
Michael Caligiuri-de Jesus owns shares in MAKO, ACOM, and LULU. Michael will not buy or sell any of these stocks within the next 48 hours.
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