When Its Worthwhile To Invest In Underperforming Stocks

A new reader asked me why I continue to own underperforming clunkers in our model portfolio like Coca Cola Hellenic or Bombardier. The main reasons are that I think my reason for making the investment continues to apply in both cases, but the managements are having trouble reaching the goals. I tend to be sympathetic to companies facing unexpected problems like CCH in Russia and its former satellites, or BDRAF confronting the safety risks of putting out a wholly new energy-saving aircraft in its niche. Of course I could sell them and then buy them back but there are risks with that.

This is particularly the case for a commodity-linked stock, like Vale or Cameco, miners of iron and uranium respectively, also old-timers for us. Commodity prices can turn quickly. So trying to time stock sales and purchases is perilous, for instance with iron pellets from VALE or fertilizers from newer holding Agrium. There is no real market for uranium which CCJ mines but in the post-Fukashima the price of the nuclear fuel is falling to new lows. CCJ responded by delaying bringing on a new mine which would boost supplies and further depress prices.

But there is an ancillary reason, street cred, why I hold losers. If I only show winners in my portfolio I think people will realize that there is a bit of survivor bias at play. My readers tend to be smart. So I keep a few losers around to show that we are honest tabulators of our performance.

Saturday marked the end of Teva's patent protection for its multiple sclerosis drug Copaxone, pending a SCOTUS ruling expected later this year on its appeal over a lower court ruling ending its patent. So far nobody has filed to make a generic, risking having to pay damages if TEVA wins the Supremes case. With Israel now two days ahead of Wall Street (Tel Aviv is open Sunday and of course they don't do Memorial Day because they commemorate their own war dead on a different day), Teva roared ahead 4.03% Sunday and fell back only 0.61% on Monday. We have a catching up session today. Moreover the shekel was stronger against the Greenback because most analysts do not expect a Bank of Israel interest rate cut on Monday night. If there is one, the Israeli currency may weaken over night.

The www.global-investing.com performance tables have just been posted on the website. Rush to view them now ignoring the lovely weather (at last).