On its own, a falling share price is not reason enough to sell. In fact, it might be a good time to buy. But if the drop in price is tied to a consistent decline in business results – revenues have been declining for more than two years, for example – exiting may be a good idea.
Some investors set a threshold for losses before they’ll sell. If a stock falls 20% from his purchase price, Koch sells. “I manage real people’s money, and my goal is to protect capital. If a stock falls 20% after I buy, I’ve obviously made a mistake. I sell and go to the next idea.”
But Koch can be patient for stocks that go nowhere, another situation that prompts many investors to sell, sometimes prematurely.
In 2015, he bought shares in BlueLinx Holdings (BXC) when stock in the building-products company traded at $7 to $8 a share. “It was dead money for a long time,” he says. But his long-term view was that when home-building stocks prospered, BlueLinx would, too. He was right. Koch sold the stock this year in the mid $40s.