Return on Investment

When To Sell a Stock

I got my MBA at Carnegie Mellon University back when it was Carnegie Institute of Technology, and the MBA was called a Master of Science in Industrial Administration. Carnegie is located in Pittsburgh Pennsylvania, where the Monongahela and Allegheny Rivers meet to former the Ohio River. In those days, one of the most beautiful sites, in my opinion, was to take the tram up Mt. Washington and look down into the city. Mt Washington is not really a mountain, it’s only a hill, but the vista was so impressive. The smokestacks of Jones and Laughlin Steel spewed tongues of dancing fire streams in hundreds, if not thousands, of colors. It was so impressive.

In the 1960s and into the 1980s, the United States dominated the world steel markets. US Steel and Bethlehem Steel were part of the DOW. Allegheny Steel, J&L Steel, and Inland Steel were dominant in the industry. Many of Europe’s steel mills were either destroyed or not really functional following World War II. Japan and the far east were just beginning to build steel mills. As the mills were rebuilt in Europe and new mills came on-stream in Japan, they functioned with new technology and manufacturing methods. They were beginning to make steel cheaper than the mills in the United States could manage.

The foreign competitors were producing steel was so much more cost effective that it could be transported from overseas and still be priced less than the American companies’ product. America was losing market share with their out dated mills, but instead of updating and modernizing the US steel companies went to Washington DC and began to lobby congress to pass tariffs on foreign made steel.

In the beginning, those tariffs protected the US producers in America, but their world dominance was passing away. The foreign companies continued to work on reducing manufacturing costs, while the American companies hid behind the tariffs.

Today, US steel companies have lost most of their market share, and some have disappeared completely. Those smokestacks of Jones and Laughlin Steel are gone. The place where that steel mill stood now houses and redeveloped shopping and living area.

We live in a world where the law is global competition. Companies who do not innovate and improve will eventually die and disappear. There was an expression in the 1950s and’60s: “If it is good for General Motors it is good for the United States.” That same General Motors suffered its own failure to recognize the changes in the marketplace and filed for bankruptcy in 2008. Will they survive in the longer-term? It is not certain.

Think of the DOW stocks from 1966, when the DOW first hit 1000: Bethlehem Steel, Union Carbide, Johns Manville, Anaconda Copper, American Can, Texas Corp, Swift and Co, Sears, Westinghouse Electric, and Woolworth all featured prominently.

There was a time when buying blue chip stocks, holding them, putting them in a drawer, would make a reasonable return. No more. The “blue chips” can become the “black-and-blue chips,” and even vanish entirely. That does not mean that holding stocks for 5 or 10 or 15+ years should be replaced by frequently trading. It does mean following the stocks and selling at the appropriate time.

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