Back in September, Alison Southwick and Robert Brokamp reviewed five things that might rightfully lead an investor to dump a stock — or sell a big chunk of it — even when there’s not necessarily anything wrong with the company or the equity. This week on the Motley Fool Answers podcast, they’re back as promised with five more, presented with a bit of help from Million Dollar Portfolio’ s Jason Moser.
In this segment, they talk about how mergers and acquisitions can change the nature of an investment. You might have loved the corporate style of your smaller business. Once it becomes a subsidiary of Mega-Corp., you’ll want to revisit the decision. They also consider some broader rules for how you move to sell stocks.
A full transcript follows the video.
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This video was recorded on Nov. 14, 2017.
Alison Southwick: All right. Our final breakup line is, “I don’t like your mother.”
Robert Brokamp: Here we’re talking about a story when the company that you own becomes acquired and you’re not necessarily comfortable with the company that is doing the acquiring.
Jason Moser: Yeah, well, I think a very polarizing investment, not really here, but just in the investing world, is Amazon (NASDAQ: AMZN) . I think a lot of people out there may not think that what Jeff Bezos is doing is sustainable. He spends too much money. Amazon doesn’t make any money. It’s just razor-thin margins. It’s not a profitable business. And then lo and behold, Amazon acquires Whole Foods. And so maybe people who were investing in Whole Foods because they felt like they were investing in a company that was more in line with their values and their ethics, and sort of the way they would like to see food go, being a part of Amazon, now perhaps they don’t feel as comfortable being a part of a company like that.
And that’s everybody’s sort of line they have to draw on their own. It’s not to say you’re right or wrong, but if your company is acquired by another company, one of two things is going to happen. That acquisition is either just going to be a cash acquisition and you don’t have to worry about this, or that acquisition is going to result in getting shares of the acquirer. And if you do get shares of the acquirer, then you have to consider whether or not you want to hang onto them.
Now I believe Amazon just acquired Whole Foods for cash, so I don’t believe there was any sort of position like that; but it’s just an example that you have to be able to look at the acquiring company and say, “Am I onboard with what they are doing? Is this something I would invest in today, acquisition notwithstanding?” And I think for everybody they have to make that decision for themselves.
Southwick: What’s your bottom-line advice if someone is thinking, “Oh, I need to sell some stocks,” or “maybe I should sell this stock.”
Moser: It all becomes a question of why you feel like you need to sell, and there are a lot of different reasons to do it. I think that once you identify the reason why you may need to do it, what I like to do is I like to enforce a 24-hour sort of moratorium. I can’t do anything for 24 hours. What I want to do, ultimately, is remove all emotion from this. I want to make sure I’m making a decision based on just sound reasoning and good thinking.
So whatever you do, don’t be hasty. If you feel like you’ve come to a decision, give yourself 24 hours to pull back, think about it again, deliberate it. Make sure you feel like you’re making a smart decision that’s not based on emotions. I think it’s very easy — with how quickly information travels and the way that we can trade online — people make emotional decisions, and very rarely are they actually good ones. I think investing is something where you are better served when you remove the emotions from the equation. It’s not easy to do, but you can do it.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Alison Southwick has no position in any of the stocks mentioned. Jason Moser has no position in any of the stocks mentioned. Robert Brokamp, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.