03-18-2015, 08:43 AM
Completely agree with the previous posts, but will add a few thoughts.
I think a lot of DG-ers have various rules in place for selling that attempt to capture, more or less, the idea of whether circumstances have changed in a way that make the stock no longer a quality DG stock. The obvious example is if the dividend is suspended or reduced.
It is a lot harder when the dividend is still intact, but the company is otherwise faltering. At that point, you have to evaluate whether the thesis for owning the company is still intact. In my mind, when you are talking about, say, a MCD or JNJ -- companies that are proven performers that generate lots of cash -- those occasional years-long bouts of under-performance are a blessing. That is when you get rich. MCD is getting tons of negative press right now, and it earnings are off, and Chipotle, and blah blah blah. But MCD is incredibly sound, and there is nothing broken about it. When the price was at $90 or below recently, it was a gift.
I've never studied MAT, so can't answer whether it is truly broken, or if this is one of those spells that even excellent companies go through now and again. My hunch is that it is not in the same class as the best-of-breed stocks, but I'd want to understand much better if there is a specific reason for the earnings collapse and falling sales. Is it a cyclical business? Are they sufficiently diversified? What is management saying? What is the plan? Has this happened before to the company?
Please keep us posted about what you discover and what you decide!
I think a lot of DG-ers have various rules in place for selling that attempt to capture, more or less, the idea of whether circumstances have changed in a way that make the stock no longer a quality DG stock. The obvious example is if the dividend is suspended or reduced.
It is a lot harder when the dividend is still intact, but the company is otherwise faltering. At that point, you have to evaluate whether the thesis for owning the company is still intact. In my mind, when you are talking about, say, a MCD or JNJ -- companies that are proven performers that generate lots of cash -- those occasional years-long bouts of under-performance are a blessing. That is when you get rich. MCD is getting tons of negative press right now, and it earnings are off, and Chipotle, and blah blah blah. But MCD is incredibly sound, and there is nothing broken about it. When the price was at $90 or below recently, it was a gift.
I've never studied MAT, so can't answer whether it is truly broken, or if this is one of those spells that even excellent companies go through now and again. My hunch is that it is not in the same class as the best-of-breed stocks, but I'd want to understand much better if there is a specific reason for the earnings collapse and falling sales. Is it a cyclical business? Are they sufficiently diversified? What is management saying? What is the plan? Has this happened before to the company?
Please keep us posted about what you discover and what you decide!