Should I sell my 3 favorite UK growth stocks and buy my 3 worst performers?
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I'm shopping FTSE the growth of stocks with the aim of holding them at their peak, giving them time to see their full potential. But is this the right strategy?
Instead of buying and holding, a different school of thought suggests that investors sell their winners every year or so, and reinvest their gains in some of the worst performers.
This applies to the assumption that stock performance is cyclical. Successful stocks tend to be expensive, losers are cheap. Selling high and buying low is every investor's dream, right?
Time to buy, hold or sell?
Also, success often comes in waves. I've seen this in three of my top performers over the past year: independent equity specialist 3i Groupinsurance Just Group and the foreigner The Costain group.
As my table shows, they have been doing well 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% |
| The Costain group | -2.87% | 80.6% | 153.75% | -35.51% |
My three worst players have been in the last few years.
| One month | One year | Two years | Five years | |
| The 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 have 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 if I had bought. Aston Martin Lagonda (LSE: AML) five years ago. At the same time, I don't sit on the profit of 198.04%, as I would like with 3i Group.
I only bought an Aston Martin last month, and I'm already down 30%. I rarely invest in volatile stocks like this one. Basically, I had a little money left in my portfolio, and I decided to have a flutter.
I knew what I was getting into. On September 20th I wrote that “Aston Martin makes great luxury cars but as an investment it's an old mess”which was blown up seven times since it was erected in 1913.
Investing is a long-term game
I got the chance because the team is in transition mode, as it lists its flagship Vantage and upgraded DBX707 models. It had just appointed a new CEO in Adrian Hallmark, who recently succeeded Bentley Motors. I thought that might be good for me. I was wrong.
On September 30 the board said it was likely to miss full-year targets, blaming delays in procurement and weak Chinese demand.
I'm certainly not selling any of my three winners to go back down to Aston Martin. Shares in 3i Group, Just and Costain have underperformed in recent weeks, but I still see them as a better way to build long-term wealth.
I don't buy more GSK either. Its short-term future depends on a series of US regulatory applications for the discontinued heartburn drug Zantac. Before doing anything, I will wait for those to be resolved. As for Burberry, I've thrown more than enough money into that trap.
I think five of these six stocks will prove their worth over time. Aston Martin is the wildcard. I shouldn't have gotten involved, but I don't see much point in selling now. So it's still buy-and-hold all the way for me.
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