Why am I Selling These Great Companies? Maybe You Should, too...
Jason is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There is substantial evidence that the best way to grow your wealth is to buy and hold stocks for years and years. Morgan Housel (re-creating charts that super-genius Nate Silver features in The Signal and The Noise) shows in this article how the secret is buying at cheap valuations, and holding for very long periods of time. Despite this, and my claim to be a long-term investor, I've sold some of my favorite holdings recently.
To top that, I plan to sell at least two more before the end of the year, and I think maybe you should consider doing the same.
What? That's heresy!
I know it sounds counter-intuitive, but there's a method to my madness. First, let's take a look at the performance of the stocks that I am talking about from the date of purchase, to the date of sale:
Ford (NYSE: F) is one of the strongest brands in the auto business, and the only American auto maker that didn't need the U.S. government to carry it through the Great Recession. While there is a lot of uncertainty surrounding Europe, Ford's ability to make inroads in China, and accelerate growth here in North America, Ford is on the upswing. I even drive a Ford! But that didn't stop me from selling about 2/3 of my shares.
Ameresco (NYSE: AMRC) is a company that, on the surface, should be going gangbusters. With the federal, and many state and local governments facing a fiscal crisis, Ameresco's value at driving out costs tied to energy consumption should be drawing massive amounts of business. Yet the uncertainty in our political system is one of the things that has pushed expectations (and the share price) down. But the future is very bright. President Obama made the following statement in his off-the-record interview with the Des Moines Register:
"I think there’s still more work on the energy efficiency side that we can do -- helping to retrofit our buildings, schools, hospitals, so that they’re energy efficient -- because if we achieved efficiencies at the level of, let’s say, Japan, we could actually cut our power bill by about 20-25 percent, and that would have the added benefit of taking a whole bunch of carbon out of the atmosphere."
No matter your political persuasion, it doesn't get much more positive for companies like Ameresco than that. But I sold my entire stake.
GT Advanced Technologies (NASDAQ: GTAT) is one of my favorite companies. They have innovative technology, solid financials, and by most every measure are undervalued. They also have the distinction, of course, of being in one of the toughest industries out there, and the uncertainty about the future of Solar technology and manufacturing in such a tough competitive landscape has made for a very tough climate. Yet in the long-term, GT is easily one of the very best in this business. I sold all my shares in GT the same day I sold Ameresco, too.
And I'm not done yet.
I have identified two other stocks that I hold, that I intend to sell at least part of my holdings in, before the end of the year:
Ultra Petroleum (NYSE: UPL) is the low-cost producer in natural gas, and is expanding into oil production. And in case you haven't heard, North America is entering into a major energy boom. The International Energy Agency (hat tip to Morgan Housel for the link, opens PDF) is projecting that North America will be a net-exporter of oil near 2030, partially based on the transportation sectors ongoing adoption of NatGas-powered vehicles. Despite the very positive outlook for this company, not to mention my plan to be invested in UPL long-term, I intend to sell at least 1/3 of my shares in the next few weeks.
Corning (NYSE: GLW) has been innovating for more than a century, and is directly connected to what is maybe the greatest revolution and investing opportunity of this generation- the mobile revolution. Between Gorilla Glass for smartphones and tablets, fiber-optic cables to support the massive increases in data being accessed, and the growth of their Life Sciences group, the future is as bright as Corning Balance Sheet is pristine. I will be selling close to 1/2 of my position in Corning before the end of the year.
So much for buy-and-hold?
No way. I intend to be re-invested in all five of these companies at the same level (or even higher) by early January. I know it sounds pretty foolish to jump out, just to buy back in in a couple of months. But it's actually pretty simple:
I need to cut my tax bill.
All of my holdings in the companies above, are over 12 months of age, and that makes them eligible for long-term tax losses. Based on an early analysis of my tax situation for 2012, selling these shares at a loss, only to buy back in after enough time has lapsed to keep the loss on the books, will net me significantly more in tax savings than the brokers fees I am paying to jump out, wait and then get back in.
But of course, there is risk. In essence, what I am doing could be taken as timing the market. There is a very real chance that if a couple of the companies above have good news in the next couple of months, I may miss out on a strong upswing. But based on my tax situation this year, it's a risk that I am willing to take.
Should you do the same thing?
Let me state unequivocally, I am not a tax expert. Whether the approach that I am taking makes sense for you is between you and your tax professional. With that said, this is a good opportunity for all long-term investors to re-evaluate their portfolios, and make some strategic decisions in regards to how to maximize their income and growth. For me this is part of my strategy every year. Some years I sell, some years I don't.
Now get out there and figure out what you need to do.
elihpaudio owns shares of Ford, Corning, and Ultra Petroleum. The Motley Fool owns shares of Ameresco Class A, Ford, Corning, and Ultra Petroleum and has the following options: short JAN 2014 $20.00 puts on Ultra Petroleum, long JAN 2014 $30.00 calls on Ultra Petroleum, long JAN 2014 $40.00 calls on Ultra Petroleum, and long JAN 2014 $50.00 calls on Ultra Petroleum. Motley Fool newsletter services recommend Ameresco Class A, Ford, Corning, and Ultra Petroleum. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.