Obeying the bible

Today I dumped my position in gdc.to. I have a rule in my trading/investing bible that says when a major reason you bought a stock no longer exists you must sell the position. - no rationalizing, no excuses -sell. I bought gdc.to for 3 major reasons. 1) it was fundamentally cheap 2) it was showing a multi-month bottoming formation and 3) it had good potential to be a takeover target in the near future given that there was already a takeover attempt last year which fell through and that the company stated shortly afterwards it was putting itself up on the block for a merger/takeover. Today the company announced that it couldn't find any suitors willing to pay an adequate price and so it's giving up on shopping itself around. As a result, buying reason number 3 no longer exists.  I thought it was pretty shitty that they announced this news in the middle of the trading day forcing me to make a quick decision but in the end I followed my rules and sold. I realize that only 1 of the 3 reasons I bought the stock are no longer there and the news doesn't change the undervalued fundamentals which I rank as most important so maybe I was too brash.  But you know what? Why compromise? Why settle for anything less than what meets your expectations? I have other undervalued candidates with similar fundamental attractiveness that deserve my money more. Having a takeover/merger possibility with your stock improves the reward part of the risk/reward ratio and with gdc.to that reward potential is no longer there.

I still managed to exit the position with a marginal gain but if I had been in a position when I'd have to take a  loss I still would have (unless there was a really steep, emotionally charged panic sell-off). When people see bad news that makes them want to sell they'll often say "I'll sell when the stock bounces back and I break even". That's not the way you play this game. The market doesn't give a rat's ass what you paid for the stock   -it's gonna take the stock wherever it feels fits. You have to be willing to take a loss in this game. I know it can be especially hard to take a loss if you were up on a position for quite some time and then suddenly your gains are wiped out or turn to losses but you have to be willing to do that IF it's the right thing to do, meaning rational analysis suggests you do so. You can't get hung up on the past. Again, the market doesn't give a rat's ass about the past and how much you were up.

Here's the way I look at things when it comes to buying stocks. My capital is the equivalent to the most eligible bachelor in the world and the thousands of stocks that are out there are the equivalent to the thousands of eligible women who are throwing themselves at me. I can have any of these women at the snap of a finger much like how I can have any stock with a click of a mouse.  So, if I select what I think is a perfect woman and then I realize she's not what I expected her to be, like for instance she starts giving me attitude all the time  I'll kick her to the curb without any hesitation and look for someone else. How dare she give me attitude! She should be so grateful that I picked her over of the thousands of others who do would anything to have me! That's the way I look at the stocks I buy. This doesn't mean I'm completely intolerant of bad news.  If for example I'm buying a company that I believe is near the trough of the cycle, I would expect the possibility of bumps in the road. But what I don't tolerate are the types of negative surprises that invalidate what I believed the risks and potential of the company were. I don't put up with that kind of shit.

It's amazing how people put up with abusive "stock relationships". When I was an adviser I can't tell you how many people I met who were still holding the bag on Nortel years after it peaked  and crashed. I think 90% of the Canadian investing population was a Nortel bag holder.  No matter how many times the company had promised things were going to improve and then failed to deliver, no matter how many times they had to restate prior earnings which were over inflated, you just couldn't  convince most of these people to sell and move on. Instead they preferred to be abused over and over and over thinking idiotically "it's not a loss until I sell" or "it's too late to sell now".  Most often it turns out that  it's not too late to sell a loser like Nortel. Not only should you never be abused like most Nortel shareholders were, but if you're fully invested and you find another opportunity that has a better risk/reward  setup then whatever positions you're in, you have to make the switch.