The Dirty Little Secret About “Long-Term” Investing
I’ve talked plenty about the fallacies of buy-and-hold investing before. Specifically, I’ve talked about how investors say they practice this strategy, but too often what the end up practicing is “buy-and-fold.”
But there’s another equally devastating mantra that folks use. One that ties in with the buy-and-hold philosophy. And that’s “long-term investor.”
Investors use both sayings as a crutch. When things turn sour and losses begin piling up in their accounts, they tell themselves that they’re investing for the “long term.” It helps justify why they continue holding a stock. What they’re really thinking is, “As soon as this gets back to my buy price, I will sell and move on.”
But here’s the thing… the money you have tied up in that stock while you’re just trying to break even is no more valuable than the dollars you’d earn by switching to a better trade.
Don’t become a victim of this thought process.
Practice What You Preach…
Don’t listen to the talking heads that tout long-term investing. Because here’s the dirty little secret about long-term investing… outside of Warren Buffett, very few adhere to it.
Hedge funders, mutual funds, and financial advisors all spout that they take a long-term approach when evaluating investments. But none of them actually follow their own advice. Of course, they’ll continue to tell you that they’re long-term investors… and that you should be, too. After all, the longer they have your money the more fees they’ll collect.
The truth is, if their investments aren’t appreciating quickly, they’ll cut them from their portfolios — regardless of the company’s long-term outlook. (This is a big reason why we see wild swings in share price when a company reports quarterly earnings that “miss” expectations.)
If you follow the money trail, it makes sense for big money-managers to operate this way. Most are paid quarterly performance bonuses. If the stock isn’t appreciating quickly enough, they won’t earn their bonus.
So here we have the “smart money” telling you to do one thing — invest for the long-term — yet they don’t follow the advice themselves.
Why I Keep Repeating This Message
There’s a reason why I relentlessly talk about emotions in your investing, as well as managing risk with a rules- or system-based strategy. That’s because I can’t stress enough the importance of keeping losses to a minimum. I’ve seen too many individual investors make the same fatal mistakes with their portfolios… they watch their investments collapse… holding onto losers just praying for the day they can break even.
Remember, it’s okay to sell a stock for a loss. It’s going to happen. It’s part of the game. But where you can separate yourself from the crowd is by not allowing yourself to use the same old, tired excuses.
The reason I’m bringing all of this up is because what we are witnessing in the markets right now is understandably shaking the faith of individual investors. The truth is we simply don’t know if all of this selling (primarily due to the coronavirus panic) is the start of “the big one” or not.
In the meantime, I’ll continue to do two things. 1) I will continue to pound the table on this subject. Sooner than later we will see an even bigger correction in the market than we may be seeing right now. And if you can prepare yourself mentally and have a plan in place, you’ll score a victory against a big loss. 2) I will continue to identify potential opportunities for my readers to profit. And I’ll do this by looking to buy wonderful businesses at reasonable prices. These are the kinds of “no-brainer” buys in well-known names that form the foundation of a successful portfolio.
The other way I’ll do this is by identifying smaller, lesser-known companies that are overlooked by the mainstream Wall street crowd. In fact, I’ll share one of those with you today. Once you learn about it, I encourage you to look into it further and see if it suits your own portfolio…
A Small Stock Worth Looking Into…
Ever been capped out, or gone over, your internet data plan? Or perhaps you’ve consumed too much data and suddenly your internet speeds drastically slow down.
Believe it or not, it’s not only infuriating for you, the consumer. It’s also a headache for the communication company providing your service.
Luckily, I recently came across a company that is stepping in and helping many of these communication companies solve this problem.
The company is Calix (Nasdaq: CALX), a smaller (around $500 million market cap) company based out of San Jose, California.
Calix’s cloud-based platforms and services provide communication service providers a deeper understanding of how their subscribers using their services. That means looking at not only how they’re utilizing the internet, but also how to better serve these users as they connect multiple devices to the internet.
Here’s what’s interesting to me about this stock…
The Internet has practically become a utility. Usage will continue to grow as our homes and world become more and more connected. This demand has put a strain on service providers as they try and handle the load while keeping the customer happy. Calix has built services to address this major issue. And communication companies are realizing the massive benefit that Calix brings to the table.
This company may be small, but it boasts some big names as customers. Companies like Verizon, Cox Communications, and CenturyLink are among the more than 100 customers that utilize Calix’s platforms and services.
In 2019 the company reeled in more than $424 million in sales and $4.7 million in cash flow — a 35.1% jump over the previous year. The company also maintains a solid balance sheet with more than $47.5 million in cash and $44 million in total debt.
Action To Take
Calix is a small company that operates in a highly competitive market. Should it fail to innovate and attract customers or one of its larger competitors sparks a price war, that would damage the firm’s margins and sales. This would put a damper on the share price, in which case you should have strict rules in place for getting out of the trade if it goes against you.
With that said, Calix shares had some real momentum before the broader market selloff of the last couple days. So if you’re looking for a smaller, more aggressive name to buy on the dip, this one is worth looking into further.
P.S. There’s another small stock I like even better than CALX…
I’ve been telling my readers about a little-known satellite company that could be my top pick for 2020. It just paid a measly $26 million for a tech startup — and buried in the details of the deal was a stunning revelation…
To put it simply, this tiny company was sitting on an absolute gold mine. This startup owned exclusive global rights to a huge slice of satellite communication frequency channels — a “hidden asset” that could be worth up to $10 billion.