If anyone told you that they were disappointed about the performance of a stock they owned that was up over 8,000% in the span of six and a half years, you would slap them silly. Who wouldn’t kill for a stock that had that much of a gain? One exception, though, is Pier 1 Imports (PIR). From its low in 2009 through now, PIR is up 8,060%, but a look at the chart shows that the last two years have not been kind. PIR hit a high of $25.29 in May 2013 but has now lost more than two-thirds of its value taking the bull market gain down from 25,190% down to 8,060%. (PIR closed at $8.68 on Thursday but is down 6% after hours.)
One of the toughest parts of managing assets is knowing when to sell; not just when to cut losses but also when to take gains. Long term holders of PIR faced this dilemma on the way up and now on the way down as well. For this reason, utilizing stop prices should be part of any investor’s process and is a strategy we employ in our managed accounts as well as our Model Portfolios for subscribers. While no strategy using stops will guarantee that an investor always gets out at the top, it will help to avoid situations like the last two years in PIR. In our experience, we have seen too many examples of investors having triple or even quadruple-digit gains in individual stocks only to give up all of the gains and even more by riding the stock all the way down.