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I don’t know about you, but selling is my weak point. Maybe I’m too trusting of management or willing to wait through hard times instead of scrutinizing new developments more. Either way, I’ve made plenty of bad decisions when it comes to selling and have lost a lot of money in the process.
But I realize that the above articles are more of an overview and do not get down to the specifics or provide good enough examples.
It’s easy to say you should sell when the company fundamentals have changed, but what does that mean exactly?
To get a better idea of the thought process, there is no better way than to read letters to investors written by high profile fund managers.
Go ahead and read Einhorn’s Q2 letter to investors. It’s this weeks recommended read.
If you decide to read it later, here’s a paragraph on DELL.
We also closed several positions during the quarter. Dell (DELL) proved to be a disappointment. We had thought that the growth in the non-PC business would be enough to offset the deterioration in the PC business. The non-PC growth was smaller than we’d hoped and the PC deterioration was worse than we’d anticipated. While DELL has a good balance sheet, it appears likely that management will try to use much of the cash to try to buy its way into better businesses. At a minimum, this will erode some of the value cushion that the cash balance creates. We exited with a loss.
His thought process is impressive indeed. It is not clouded or biased. Just objective, rational and decisive.
This is the type of elevator pitch that I’ll have to work on for both selling and buying. I could write pages of analysis but true skill requires boiling it down into its simplest form. A skill that Einhorn just seems to be born with.
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