Should I sell my 3 favourite UK growth stocks and buy my 3 worst performers?
I buy FTSE growth shares with the aim of holding through thick and thin, to give them time to realise their full potential. But is this the right strategy?
Instead of buying and holding, a different school of thought suggests investors sell their winners every year or so, and reinvest their gains in some of their worst performers.
This works on the assumption that stock performance is cyclical. Successful stocks tend to be expensive, poor performers cheaper. Selling high and buying low is every investor’s dream, isn’t it?
Time to buy, hold or sell?
Also, success tends to come in waves. I’ve seen this with my three best performers over the last year: private equity specialist 3i Group, insurer Just Group and outsourcer Costain Group.
As my table shows, they’ve had a brilliant run lately. I also suspect they may struggle to maintain their momentum.
One month | One year | Two years | Five years | |
3i Group | 5.87% | 64.54% | 183.04% | 198.04% |
Just Group | 0.14% | 106.1% | 118.83% | 155.5% |
Costain Group | -2.87% | 80.6% | 153.75% | -35.51% |
My three worst performers have had a dismal few years.
One month | One year | Two years | Five years | |
Burberry Group | 4.3% | -64.22% | -66.01 % | -68.14% |
Aston Martin | -27.43% | -58.47% | -83.39% | -96.94% |
GSK | -12.29% | -1.84% | 9.87% | -16.03% |
The longest I’ve held any of these stocks is just 15 months. So luckily I haven’t lost 96.94% of my original stake, as I would have done if I’d bought Aston Martin Lagonda (LSE: AML) five years ago. At the same time, I’m not sitting on a 198.04% gain, as I would with 3i Group.
I only bought Aston Martin a month ago, and I’m already down 30%. I rarely put money into highly volatile stocks like this one. Basically, I had a small amount of cash left in my portfolio, and decided to have a flutter.
I knew what I was getting into. On 20 September I wrote that “Aston Martin makes sleek luxury cars but as an investment it’s been a wheezing old banger”, going bust seven times since it was set up in 1913.
Investing is a long-term game
I took a chance because the group is in transition mode, as it lines up its Vantage luxury supercar and upgraded DBX707 models. It had also just appointed a new CEO in Adrian Hallmark, fresh from a successful stint at Bentley Motors. I thought that might bode well. I was wrong.
On 30 September the board set it was likely to miss full-year targets, blaming supply chain delays and weak Chinese demand.
I’m certainly not selling any of my three winners to double down on Aston Martin. Shares in 3i Group, Just and Costain have idled in recent weeks, but I still see them as a better way to build long-term wealth.
I’m not buying more GSK either. Its short-term future rests on a string of US legal claims over discontinued heartburn medication Zantac. Before doing anything, I’ll wait for those to be settled. As for Burberry, I’ve thrown more than enough cash at that falling knife.
I think five of these six stocks will prove their worth over the longer run. Aston Martin is the wildcard. I shouldn’t have got involved, but don’t see much point selling now. So it’s still buy-and-hold all the way for me.
The post Should I sell my 3 favourite UK growth stocks and buy my 3 worst performers? appeared first on The Motley Fool UK.
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Harvey Jones has positions in 3i Group Plc, Aston Martin, Burberry Group Plc, Costain Group Plc, GSK, and Just Group Plc. The Motley Fool UK has recommended Burberry Group Plc and GSK. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2024