7/23/2012
By Charles Payne

More Articles by Charles Payne

Fanciful Facades?

Wake up, Muttley, you're dreaming again!

You're not Robin Hood and you're not Gunga Din.

You're not a brave knight or a king who's been crowned;

You're just plain old Muttley, the snickering hound!

-Dastardly and Muttley in Their Flying Machines

I get a chance to see portfolios every day, including those from ideas I've given my subscribers and I still think the biggest impediment to making money longer term is the inability to take a loss.

What happens is you buy three stocks and make money on two, but one is a loser-you put it on the shelf. Maybe you buy three more stocks, and this time two are down, so you put them on the shelf. At some point you will have no cash and a shelf filled with losers. You will have forgotten about the winners and fret and moan, and more than likely stop buying new ideas.

You have to wake up and take some losses.

For Long Term Investors cues to bite the bullet:

Criminal Scandal

A Case study is Rite Aid (RAD) September 1993; this was a $6.70 stock that rallied to $48.60 by December 1998 when it was rocked by criminal scandal. The stock has been stuck in a range for a decade and trades at $1.20.

History of Earnings Misses and Warnings

Case study is Lexmark (LXK) which warned on Friday, July 13 that earnings would come up short. The news really wasn't news. The company hasn't had a clean earnings report in a long time and missed. 2Q11 $1.14 v $1.25 expectations and 3Q11 $0.95 v $1.03 expectations.

Other signs to bite the bullet include:

Losing market share (do peer to peer review to help)

Margin contraction (means no pricing power and that kills bottom line and quality of earnings)

Charles Payne
Wall Street Strategies