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Sell a Stock When The Story Changes

If you happen to read some of my past articles, you know that I’m a “buy and hold” and “dollar cost averaging” kind of guy!

When I buy a stock, I usually buy it for the long turn (except in my Roth IRA, where I do some small active trading in down markets  and use it as a dividend shield).  Occasionally something happens to one of my stocks that requires that I sell the stock since the story has changed.  Such was the case yesterday.

I sold a stock that has increased in value by around 10 fold!  It was a great stock and had a wonderful business model where it’s at (in China).  In fact the company is so good that it practically has a monopoly in it’s area of expertise.  It’s main competitor (Google) exited the environment leaving all the spoils to this company.  Yes, the company is Baidu (ticket BIDU).  I’ve held this company for a few years and it has been the equivalent of a rockstar among stocks.

So why am I selling it now?  China!

China is an incredible country and there is a lot of great growth happening over there with respect to their economy.  Baidu has been a shining star, even in a fast growing country like China.

So again, why am I selling?

The state media is starting to sling mud at Baidu by stating that Baidu is allowing bogus drug companies to sell fake drugs on it’s site and claiming that the auction bidding process for Ads is rigged. In the US, this would not be room for alarm and wouldn’t bother me much since the company would most likely just get fined.  But in China, they can do whatever they want, whenever they want.  They have no restrictions.  If they want to shut down Baidu tomorrow, they would just walk in to Baidu and shut it down.  If they wanted to take over the company and claim it’s now a state company, they can do that too.  China actually has no limits as to what they could do.

So the real question is, has Baidu’s story changed?

  • Well, the last identification of problems by the state may change Baidu’s business model.  if this happens, then there is a chance that it might not be as profitable.  This would destroy the stocks growth rate and stock valuation.
  • Potential loss of the drug Ads could have an impact on Baidu’s profits too.
  • Changing the business model (if this is done again), may prove less profitable than the prior model.
  • If China nationalized the company, many would be out of lots of money.

The reasons above dances in my mind, but mostly it’s investor sentiment that worries me.  Others may be thinking about the small subset of problems points that I mentioned above and start to sell even more that what has happened already.

Depending on what goes down and how brave I feel, I might try to buy some more shares if the price falls far enough.

So yes, because of uncertainty, I’m out of one of my favorite stocks.

What would you have done?  Do you think I’m panicking too quickly?

Time will tell,





10 Responses to Sell a Stock When The Story Changes

  1. No, it sounds like selling was a good idea. I might have purchased some put options and waited to see what happened. It is surprising that China even cares that auctions are rigged. I wonder why it matters to them all of a sudden?

  2. Definitely not panicking. If you have a 10 fold return, it might considered foolish NOT to sell. Nobody can time the market perfectly, and you held quite a long time. I have Baidu climb over the months and wished I too had invested in it long ago. Same is true with Apple. I thought it was due for a correction when it was at 170, but i was obviously wrong. That is why I usually invest in mutual funds, although I also have some individual stocks.

    Great job MR. Now, what are you going to do with the proceeds?

    • I’m not sure what to do with the proceeds, probably try to find a decent stock to put some of the money into. I might even go back into Baidu if it drops low enough.

      I was in Netflix at the beginning (way back when), but I pulled out to early (only doubled). I know they had a good story, but I was afraid of blockbuster… boy did I get that one wrong 🙂

    • It was such a great story that I held onto it for a long time, watching it shoot to the moon. It was great!

      Hopefully I can find something to put the money in now. Maybe even a dividend stock of some sort, who knows…

  3. You’re wise not to get greedy. Would anyone question that it was a bad investment for selling now? No way. It’s hard to predict the peak, so best to just sell at a return you’re happy with.