Streetwise
Lauren Rudd
Sunday, May 25,
2008
Celebrate Memorial Day For What It Is
Memorial Day weekend is upon us once again. For many it is
simply an extra day off work and a time to drag out the barbeque grill for the
season’s first summer party. For others it is a somber reminder of friends who
sacrificed their lives in the name of freedom.
Unfortunately, the devastating impact of armed conflicts has a
way of fading from memory. Few are left who can recount the untold horrors of
the Holocaust. A younger but graying generation pushes remembrances of the
sickening sweet smell of Napalm and burning flesh ever deeper into the dark
recesses of the mind.
Yet, the jarring impact of seeing young soldiers with scared
faces and missing limbs not only unleashes a gushing torrent of emotion, but
acts as a constant reminder of the seemingly never ending violence and bloodshed
that takes place across the globe in the name of security, peace and
tranquility.
If you saw Vietnam,
Afghanistan or Iraq
regurgitate the remains of your friends and classmates, Memorial Day cannot help
but be a day of particular significance. Yet, for all of us, it should be a time
to remember and honor those who have been called upon to make the ultimate
sacrifice.
Now I am sure you are asking yourself how those comments
relate to investing on Wall Street. They do not...except to point out that we
must occasionally turn our focus away from what we can get and instead
concentrate on what we can give back.
Traditionally, this is also the time of the year when I
discuss the subject of when and what to sell. For example, simply holding
unrealized profits is never a reason to sell. Unfortunately, the issue of when
to sell is too often treated in erroneously general terms such as, "the market
is too high, sell," or "the market is going down, sell."
Deciding when to sell is the single most difficult decision
any investor has to make. Moreover, I would be the first to agree that it often
takes super human strength to decide the matter dispassionately. Any time a
stock you hold plummets in price there is an accompanying icy panic brought on
by the thought of not only your profits evaporating, but also your original
capital.
Given that this is Memorial Day weekend, I would suggest you
once again contemplate the words penned over a century ago by Catherine Lee
Bates in the song, "America the Beautiful." She wrote, "Confirm thy soul in self
control."
Never let others, especially those who stand to receive a
commission, make the decision for you. It is nearly impossible to go wrong
implementing a buy and hold strategy. Known as a low turnover portfolio, it is
the antithesis of the brokerage industry.
Remember that a portion of any unrealized profit belongs to
Uncle Sam. As long as you do not sell, you can continue to use his money to
enhance your gains...interest free.
Investment guru Warren Buffett has stated that he is quite
content to hold any security indefinitely so long as the return on equity of the
underlying business is satisfactory.
Does this mean you never sell a stock? No, of course not,
especially if a company is suffering from deteriorating management, inadequate
cost controls, questionable accounting practices, a lack of innovation or
unfavorable industry trends.
Now I know what you are asking yourself, are there any stocks
I recommend selling? Last year at this time I mentioned the airlines and the
domestic auto manufacturers. I still do not hold those stocks in high esteem.
Although there are several companies vying strongly for the title, GM’s
management is probably the most unenlightened of any major company on the
planet.
Blinding greed results in poor marks for many of the major financial houses,
with Citigroup being first on my sell list, followed closely by such eminent
institutions as Wachovia. Tobacco stocks are also on the sell list. Finally,
there is Motorola, a sad story of incompetent management that just could not
read the tea leaves.
