From July 2022 onwards, my wife and I bought 27 new shares — 15 FTSE 100 shares, five FTSE 250 stocks and seven S&P 500 holdings. While some picks have beaten the market, others proved to be duds. What should I do with my losers? Do I hold onto them — or give up and sell up?
Three FTSE 350 dogs
Three of our worst performers are well-known FTSE 350 shares, with each company being a household name. Here they are, listed from highest to lowest loss:
|Company||Sector||Price paid||Current price||Our loss||One-year change||Five-year change|
|International Distributions Services||Postal services||272.8p||240.2p||-12.0%||+1.2%||-29.4%|
|Direct Line Insurance Group||Insurance||201p||180.75p||-10.1%||-14.1%||-43.6%|
Vodafone Group is one of Europe’s largest telecoms firms. International Distributions Services — formerly Royal Mail — has been providing postal services since 1516. And Direct Line Insurance Group has been selling UK insurance policies since 1985.
Then again, just because a business is well known and has a storied history doesn’t mean that it is well managed currently. Indeed, while longevity can be a plus for firms, it’s no guarantee of a profitable future. (Remember Woolworths, the UK high-street chain that collapsed in 2009?)
Water the roses, pull up the weeds
While pondering which shares to slash, I remembered a quote from an acclaimed US fund manager. While managing the Fidelity Investments Magellan Fund from 1977 and 1990, Peter Lynch turned it into the world’s best-performing mutual fund.
In his 1989 book One Up On Wall Street, Lynch wrote, “Some people automatically sell the “winners” — stocks that go up — and hold on to their “losers” — stocks that go down — which is about as sensible as pulling out the flowers and watering the weeds.”
Therefore, as an ‘asset gardener’ with my family portfolio as my garden, which weeds do I pull up and which plants do I nurture for recovery?
I’m not keen on IDS
My test for this dilemma is simple: I ask myself whether I would buy this share today. For IDS, the answer is no. This FTSE 250 business (and its share price) has been rocked by profit-killing strikes during lengthy industrial action.
Though these strikes are over (for now), Royal Mail is limping along, with IDS held up by GLS — the group’s profitable European delivery service. While the board is confident of a rebound, I wish I’d sold when the stock briefly hit our buy price on 20 July. If it gets back to these levels, then I may well sell.
One reason for IDS and Direct Line’s plunging share prices is that both firms cancelled their dividends. These payouts were the main reason we bought these FTSE 250 stocks. That said, I think Direct Line could be a real recovery play, so I won’t sell this stock in 2023.
Lastly, Vodafone is undertaking some radical restructuring under new CEO Margherita Della Valle. I’m willing to give her the benefit of the doubt, so this stock stays. However, if I see fresh signs of weakness at any of these three FTSE 350 companies, then I won’t hesitate to pull up the weeds!