It is good practice to check each company that we invest in every quarter to insure that they continue to fit our needs. In my case, I only invest in Good Companies (which also appear on the Watch List). If you follow my advice on this site (and in the soon to be published book) you will know that I slowly accumulate stock with my earnings in those companies that are extremely high quality. However, when a company is no longer rated Good, I sell my holdings as quickly as possible.
There is one single event that can make a company fall out of favor. A company must continue to be profitable! Unprofitable companies are too likely to do rash and stupid things to recover. They tend to worry about short term gains to stop bleeding cash. They tend to not do the right things that will make them successful for the long term.
While irrational behavior is not universal among managers of unprofitable companies, it happens enough that I don’t take the chance. This site is called Confident Investor – this means I need to be confident that the company is doing the right things. For unprofitable companies, I do not have that confidence. Since I have many choices (as do you) as to where I stick my investment money, I will simply choose to invest in companies that are only rated Good.
For the next several days, we will be repeating our looks at our Watch List and see if they still should be there. Our first company will be Goldcorp as it is has turned unprofitable and therefore no longer a Good Company. I have liquidated all of my investments in Goldcorp.