An investment dog is an underperforming stock or fund. Typically, investment dogs have dropped in value, sometimes substantially, and then stagnated. Belief in the asset itself, that its value will rebound and the desire to recoup the original investment keeps investors hanging on.
Making the decision to sell low is quite often painful and difficult. Even seasoned investors find it challenging to remain cool and detached. Why does this occur even when level-headed, rational analysis leads to a sell recommendation?
We think we are good investors because we diligently spend time on research and expect good investors to always make money. Maybe analysts are predicting higher future prices. We think, “The stock I bought is just going through a slump, but I’ll hang on and sell it for a profit sooner or later.”
Time to Evaluate
When an asset has dropped below its purchase price, ask yourself these questions:
- Is my desire to make money on every investment choice colouring my decision-making?
- Do I have a better stock idea to replace it with?
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When evaluating your investment dogs, consider not just how much you will make once the dog recovers, but also the money lost by continuing to hold, and the missed re-investment opportunities. You may not be happy with a small loss, but it’s better than a big loss.
My Investment Dog
My own investment dog is Bombardier. I purchased this stock some time ago and there’s been a modest gain in value. Then the dividend was suspended and the price dropped. Dividends have now been reinstated but the stock is still stagnant.
My husband is always announcing that my Bombardier stock should start doing well. They have a big contract for planes to the US – light rail transit cars to Manchester – bullet trains to Japan – planes to West Jet, etc etc. The Stingy Investor’s “High Yield TSX60 Stocks” lists the stock at number 27, and a yield rank of 3 out of 5 with not a bad dividend yield of 2.8%. Globe Investor analysts rate it as a buy to strong buy.
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Meanwhile, I wait expectantly for the big break out, but it never happens. The stock just sits there – an investment dog – and a big disappointment.
Why don’t I take my own advice? Why is it so hard to sell those investment dogs?