Josh Kohn-Lindquist's avatar
$24.4m follower assets
A Broken Investment Thesis
I am curious to see what you all think about closing positions when your investment thesis in a company appears broken.

I may be in the minority here, but I wouldn't say I like to close positions in these companies -- say $TDOC, $PTON, $LTCH, or $APPH for me.

I would love to have a "tidier" portfolio and put this money to work elsewhere, but most investors I admire have said that their biggest mistake was selling a stock too early.

In this weird sense, I have a kind of FOMO -- even when my investment thesis for a company isn't currently intact.

Mostly, this keeps me from thinking I'm smarter than I am -- getting too trigger-happy when I incorrectly feel a thesis is broken and selling right away -- and doing this too frequently.

Instead, I hold the position, stop adding, and let it run and rightsize itself to my portfolio, accumulating more data over a longer time frame.

Who is to say my investment thesis for the company was correct in the first place?
What do you do with a broken investment thesis in your portfolio?
34%Sell it all
30%Sell most of it
9%Sell some of it
25%Hold and let it run
43 VotesPoll ended on: 07/31/22
Steve Matt's avatar
If it was a small investment to begin with, say <1%, it’s probably now worth <.25% and there’s no point in selling because the money isn’t a big deal. Great example would be FUBO for me right now.

However, if it’s a larger initial position and the thesis broke, absolutely sell because those funds can be a bigger impact elsewhere. Great example for me is $SMG. I invested for Hawthorne subsidiary, it has been performing terribly recently and management is now talking about spin-offs which to me is a lack of confidence from them. I exited my SMG position and redeployed elsewhere.

Generally though, I don’t sell. It’s rare for a thesis to break in a larger position for me. That may be indicative of theses that are too broad or have other flaws though. Never really considered that until now as I’m typing lol.
Sidni Standard's avatar
@interrobangbros could selling a portion of it still have the same effect? That way if it goes up you still get to experience the upside but dilute the risk by putting some of the capital to work somewhere else?
Steve Matt's avatar
@sidnistandard It could. I've done that before, selling 80% of a broken thesis and keeping the other 20%, but it's rare. I often would rather just pull the band-aid off and move on.
Sidni Standard's avatar
@interrobangbros good to know… ty!
Josh Kohn-Lindquist's avatar
@interrobangbros Excellent point on position sizing -- hadn't thought of it that way.

If my largest holding, $KNSL, was hit with fraud or something horrible, I'd almost have to sell most of it to protect myself but would still keep some.
Samuel Meciar's avatar
Ask yourself what was your thesis for those businesses and then whether it's still present. If it's not, cut it. If it is in-tact, hold or add. Quite simple. For me, I used to hold $PTON but got out months ago as I lost interest in the space and started seeing a few red flags, so I sold around $110, and then $TDOC I got out after Q1 results as I concluded the management either purposefully lied or doesn't have enough visibility into their business to the point of factually being incorrect on the guidance they provided last time but in a meaningful way, either way, I just can't trust that management. So I took the L and sold it at around $34. No regrets, don't care how much I'm up or down. This is a process I stick to. In that case, it was time to move past them for me.
Josh Kohn-Lindquist's avatar
@sammeciar Those are very interesting points. But, weirdly, my investment thesis for both $TDOC and $PTON is still somewhat intact.

However, as you said, management from both more or less lied to us on different topics -- that is very close to an automatic sell, regardless of how much I like them.
Joshua Simka's avatar
@joryko I disagree with you about $PTON but I don't feel that $TDOC's thesis is broken. I think we're still reallyyy early in telemedicine and a lot remains to be seen. I think there are red flags though. I'm aware this could just be bias on my part because I own lots of $TDOC and not of $PTON.
Josh Kohn-Lindquist's avatar
@tomato That's just it -- if you only looked at Teladoc's numbers (minus goodwill problems) instead of its stock price, it is still far from pretty -- but doing what it needs to.

It is a great example of why I'm hesitant to sell until a company looks close to death.
Nine to Five Investing's avatar
Personally, I love the idea of a more concentrated portfolio but the nature of my growth investments don’t give me peace of mind in any kind of concentrated form. So since I don’t intentionally build huge concentrated positions I like the idea of just not adding and letting it run. Eventually DCA will make the loss look minuscule.

And as dumb as it sounds you really never know when a trash investment from 3 years ago experiences a GameStop or AMC-like squeeze event. Once it has become such an irrelevant part of your portfolio, the only advantage to selling at that point is the aesthetics of cleaner looking portfolio. At least that’s how I look at it
Josh Kohn-Lindquist's avatar
@ntfinvesting That's exactly how I think in regard to the DCA.

Also, it seems like when these broken ideas start to see their stock crumble, private equity generally comes in at some point and takes them out at a slight premium. I guess that would count as another minor reason to stay put, too.
The Thinking Investor's avatar
Tough question to answer as there are so many variables. I think if it’s clear the thesis is broken, you cut your losses and redeploy into better opportunities.

The key is knowing if it’s broken or if the company is going through short term headwinds. I don’t follow any of those companies so I have no insights into that area for you.

I tend to hold and make sure I’m not selling due to being irrational (such as selling because the stock price is down). But if you thought the company had a specific growth driver that would represent a bunch of revenue and now that driver is no longer functioning and won’t function again in the future I think you have a good reason to sell.
Josh Kohn-Lindquist's avatar
@thethinkinginvestor Exactly, it's that battle between me being confident in knowing whether the thesis is broken or not versus just giving it more time that usually makes me take the lazier approach of doing nothing. 😂
Alex Biestek's avatar
I want to say "Sell it all" but I currently hold $SQ and am down quite a bit. I too have been pondering selling and using the cash for other positions and "tidy" up. But I have yet to do so....

So Hold and let it run? Lol

I do see myself selling all of $SQ in the near future. If I miss out on some big future gains, I'd still sleep sound at night knowing that my money is being put to work in another position.
Josh Kohn-Lindquist's avatar
@acb123 Very true, the only thing that scares me when selling and redeploying cash is that I have to time things right twice -- when to sell what I own and when to buy something new.

Generally speaking, my timing is trash (why I DCA), so I lean towards just holding. 😂
Alex Biestek's avatar
@joryko Thats a good point
Conor Mac's avatar
Sell most, if not all.
Josh Kohn-Lindquist's avatar
@investmenttalk I think that's what I'd do if I was 90%+ confident my thesis was toast.
sam stribling's avatar
If it’s stock.. for me.. hold to infinity after a certain point. Streaming are my current examples both $ROKU and $FUBO are down like 90% on the year so not much to salvage. Stock doesn’t expire so rather wait around I’ll be in the market anyway.
Josh Kohn-Lindquist's avatar
@strib "I'll be in the market anyway." Love that!
Rihard Jarc's avatar
If you do not have conviction in the company anymore it's best to sell to matter the timing, specially in a downturn where you can find other good opportunities to deploy your capital.
Josh Kohn-Lindquist's avatar
@rihardjarc Very interesting regarding the timing of a market downturn. Hadn't really considered that as much -- especially in times like these.
Rihard Jarc's avatar
@joryko Yeah and also in downturns I tend to concentrate the portfolio in high conviction names so no room for low conviction stocks.
Dollars and Sense's avatar
Given $INTC recent performance I'm in the Hold and Let it run Camp
Josh Kohn-Lindquist's avatar
@dollarsandsense That may be the ultimate example of a buy-and-hold stock with the CapEx it has planned. I'm not deeply knowledgeable of their operations, but from the analysts I've heard talk about it, I really like their long-term strategy.
Chris Miller's avatar
@joryko @dollarsandsense $INTC has lost the battle to it's competitors. Someone else will pass them during this next 5 year CHIPs development unless there is real change. Just my opinion.
Joshua Simka's avatar
@joryko, like you I continue to hold investments long after the thesis appears "broken," so what you're laying down here really resonates with me. :) Often by that point, the stock has fallen lots and the position is such a tiny portion of my portfolio that it's not really worth going through the motions of selling--though I realize even a 10 bagger for some of my biggest losers wouldn't have that much effect on my portfolio. I'm of the mind that investors' biggest mistakes are often in selling too early and not buying in the first place. I have a diverse portfolio and I like to spread my money around a lot of sometimes very risky ideas. So that covers the pitfall not buying issue. And then to get around the selling pitfall I just try as hard as I can not to sell. :) I certainly don't add to these positions though.
Josh Kohn-Lindquist's avatar
@tomato I think we have fairly similar portfolio strategies it sounds like. I want a widespread attack and to just focus mostly on the winners from there. If I ever get a position that accounts for > 10% of my portfolio it might be different, but for now selling is no fun. 😂
Chris Miller's avatar
My investment thesis for $Z has not changed. In fact, looking backward, glad they sold those homes while market capacity was available. The real question is how can they make more money in the near term. They are going to struggle, much like $PTON and $LTCH.
disclaimer: was a $LTCH share holder and trader in Q1 22
Josh Kohn-Lindquist's avatar
@cchriscs Very good points. Latch is an interesting company for me.

Its thesis is roughly the same as it has ever been, but the cash burn is incredible and the market's conditions are not favorable for it to thrive (or worse yet, maybe even survive) the next few years.

But its vision is still sound -- so its in that weird spot to where I'm just going to let it run.