Breaking A Cardinal Rule In Investing If You Have Conviction… Is Sometimes Okay
Peter Sayles |
Blue Apron (APRN) is our #1 whipping boy.
MightyTrades readers shorted it back in February and made 29% in just 12 days.
It’s got thousands of competitors. No moat. No intellectual property. Loses money on every customer it acquires… leading it to qualify for our infamous list of stocks guaranteed to lose you money long term. (APRN is down 79% since that post.)
Blue Apron will go bankrupt unless the management does something drastic (excluding the chances it gets bought out)… which is nowhere in sight.
MightyTrades readers shorted APRN again on July 7th. Our timing couldn’t have been worse. APRN shot up more than 41% after announcing a partnership with plant-based meat producer Beyond Meat.
We were down almost 30% on our short in a week.
(This is the worst feeling as a financial publisher. Our stomachs twisted and turned as we watched APRN shoot straight up on the news. It wasn’t the greatest feeling publishing that trade to new MightyTrades readers who we’re trying to build long term relationships with.)
Our stop loss was within a couple percentage points of closing us out. We could’ve just closed the trade early. And remove the emotional attachment to our thesis APRN is going bankrupt
But we told readers to stay in the trade. Or establish new positions on the spike in an urgent email alert… which was the right trade.
We knew the partnership with Beyond Meat would do nothing to help APRN’s business. It was just headline trading.
APRN has been on a one way ticket back down to new lows since the deal. It’s taken a while. APRN is now down 33% since its July peak on the Beyond Meat announcement.
MightyTrades readers are now back in the green – up 5%.
The conviction we have/had on Blue Apron’s demise made us stubborn – the worst attribute in investing.
Most investors see their stock positions down 50% and say “at this point, I’ll just hold till it gets back to breakeven, and then sell.”
But the stock almost never does or ever will. And investors realize the stock has to then double (go up 100%) for them to breakeven. A stock down 90% has to go up 900% in order for them to breakeven.
That’s why stop losses are crucial for 99% of investors. It strips the emotion out of the trade and allows them to live another day in the stock market. and not get wiped out.
We were close to breaking our own cardinal rule on behalf of MightyTrades readers by staying in APRN. We were just a couple percentage points from hitting our stop loss. It would’ve been easier just to close the trade and move on. But thankfully we didn’t stop out.
MightyTrades readers are now back in the green… and Blue Apron is headed back towards insolvency.