Brief Summary
The video discusses the factors investors should consider when deciding to sell a stock, focusing on changes in the company's fundamentals or its price relative to other opportunities. The host shares his recent decisions to trim his positions in Lyft and Alibaba, explaining his rationale based on updated assumptions and risk-reward assessments. He also touches on the importance of being aware of personal biases, such as being influenced by a stock's price history, and managing portfolio risk.
- Investors should consider selling when the company's fundamentals change or when the stock's price no longer offers a favorable risk-reward ratio compared to other opportunities.
- Personal biases, such as being overly influenced by a stock's price history, can affect investment decisions.
- Managing portfolio risk involves considering the overall exposure to specific countries or sectors.
Reasons to Sell a Stock
Typically, there are two main reasons to sell a stock: a change in the company's fundamentals or a change in the stock's price. When the initial investment thesis is invalidated by new information, adjusting assumptions and considering a sale may be necessary. Alternatively, if the stock price increases significantly, it may be prudent to reevaluate the risk-reward ratio compared to other market opportunities.
Alibaba Stock Trim
The host significantly trimmed his position in Alibaba after the stock price more than doubled this year. Despite acknowledging that he previously made mistakes in overestimating the company's growth and multiple, he reassessed the risk-reward at the current price of $177 per share. While recognizing the potential for growth in Alibaba's cloud and international commerce segments, he concluded that the expected returns no longer justified the risk, especially considering the company's exposure to China.
Personal Biases in Investing
It's important to be aware of personal biases that can influence investment decisions, such as being overly influenced by a stock's price history. Some investors may be biased against buying a company if its stock price has declined significantly, while others may be inclined to sell a stock that has experienced a rapid increase. The host admits to having a bias towards selling stocks that have gone up significantly in a short period of time and emphasizes the importance of acknowledging and overcoming these biases to make rational investment decisions.
Lyft Stock Trim
The host also trimmed his position in Lyft, although not as significantly as with Alibaba. While he still believes Lyft offers excellent value based on management's long-term guidance, he reassessed the risk-reward at the current price. He considered various scenarios, including a bull case with 14% revenue growth and a 9% operating margin, a base case with 10% revenue growth and a 7% margin, and a bare case with 6% revenue growth and a 5% margin.
Lyft's Potential Upside
Despite trimming his position, the host acknowledges that his bull case for Lyft may be undervaluing the upside potential, particularly with the company's recent partnership with Waymo to bring autonomous driving to Nashville in 2026. He notes that autonomous vehicles could significantly reduce costs and improve margins, potentially leading to a higher annualized return on the stock. He plans to follow the company closely and discuss it further on the channel after the next earnings release.
New Position
The host mentions that he used the money from the sales of Lyft and Alibaba to enter a new position, which he will discuss in his next video.
