Thursday, February 08, 2007

Selling at a loss -- more thoughts

In a recent post, Canadian Dream walked us through his thought process in doing one of the hardest things we ever do as investors: selling at a loss.

I'm not sure what's a worse feeling: thinking about the stocks you buy that you shouldn't have, or the stocks you should have bought but didn't. I'm guessing it's the former -- their presence in your portfolio is a constant reminder of a failure, so there' s a pride issue. The latter just means you missed a potential gain -- but buying a loser gives you an actual loss, which feels much worse for some reason.

It's a topic that's certainly pertinent to me. I wrote about my experiences doing it just a little while ago with CanWest MediaWorks Income Fund (CWM.UN).

Canadian Dream's turkey was Harvest Energy Trust (HTE.UN). In short, his reasons for dumping were a lot like mine were -- a string of bad news driving the unit price down, creating a suspiciously high yield and an inability to shake the nagging feeling that a suspension or cut of distributions was coming. After crunching the numbers, his gut told him to sell and get out with whatever he could grab on to. He's out around $500 for his trouble, oddly similar to the amount I lost in my little CanWest misadventure. I try to follow the general rule of not paying attention to the price of a stock after I've sold it (second-guessing never did anybody any good) but I was hard pressed not to notice the huge news about CWM.UN that came out this week, a few weeks after I'd gotten out.

After selling the units to the public in trust-happy late-2005 for a cool $550-million, CanWest is apparently hoping to take the assets back again at a price about $100-million less than they solid it for in the first place. Of course buyback news like that drove the unit price up by as much as 60 cents. That's 60-cents-per-unit-less that I could have lost in my initial, misguided investment.

So how am I feeling? Surprisingly fine. Aside from a general feeling of ill-will towards CanWest management in general, I'm not kicking myself too hard over this because I based my decision to sell based on a sound analysis of the information I had at the time. And that's all I can ever ask of myself. God knows I've had my share of good dumb luck -- doubling my money in three months on Nortel, for example -- to even out bad luck like this. My mistake here was in buying the trust in the first place when I knew the payout ratio was above 90%, not dumping them three weeks too early. Selling wasn't a mistake per se -- I just got unlucky on the timing. So I'm filing this under 'learning experience.'

Luck I can't control. But I can do my homework. As long as any losses have more to do with bad luck than my own incompetence, I'll sleep fine at night. And get better at this with time.

1 comment:

Canadian Dream said...

GIV,

Good post. Thanks for the link.

CD