In this episode of Motley Fool Answers , hosts Robert Brokamp and Alison Southwick want to focus on one question -- but it's a big one, especially for long-term Foolish-style investors: When should you sell a stock? To provide the answer, they've tapped (or is it taped?) a couple of big Fools with expertise in these matters: Motley Fool Chief Investment Officer Andy Cross and Ron Gross, the advisor for Motley Fool Total Income, who conveniently did a presentation on the subject at the recent FoolFest.
They'll lead off with a discussion of several terrible reasons to either close out a position or choose to stay in it for too long. But then they'll get to the meat of the issue, with the three good categories of reasons for selling. Then, Cross and Gross rapidly respond to seven interesting inquiries from the audience.
A full transcript follows the video.
10 stocks we like better than Walmart
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, the Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Walmart wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of August 6, 2018
The author(s) may have a position in any stocks mentioned.
This video was recorded on Aug. 14, 2018.
Alison Southwick: This is Motley Fool Answers ! I'm Alison Southwick and today we're taking you back to FoolFest with advice from Motley Fool's Andy Cross and Ron Gross on when to sell a stock. All that and... Well, actually that's it on this week's episode of Motley Fool Answers .
Last year we did a series on when to sell a stock and because of your feedback, we learned that you were hungry for even more on the topic. Thankfully, Motley Fool's chief investment officer, Andy Cross, and Ron Gross [the advisor for Motley Fool's Total Income service] covered the topic at FoolFest this year, so we're just going to go ahead and run their presentation whole cloth. It's pretty fun. Andy and Ron start off by covering some common misconceptions around selling. Enjoy!
Ron Gross: We thought it'd be fun if we started with some misconceptions -- feel free to chime in, here -- before we get into the real reasons why we think it'd be fair to sell. So, first one, right?
Andy Cross: You've heard a lot of these. I know I have said some of these myself.
Gross: The first one you hear all the time -- especially if you watch CNBC -- I'm going to discourage you to do because it raises the blood pressure. They're an entertainment vehicle. They've got to maintain that hype as much as they possibly can so you stay on that channel. I think it's counterproductive to long-term investing, but they do have some smart guys.
The stock market correction is coming. I don't know about you. My crystal ball has been broken for quite some time.
Cross: 20 years.
Gross: If I had a perfect crystal ball, I might not even have one up there because that might make sense. If history has taught us anything, it is that it is pretty much impossible to correctly predict the stock market. You'll see someone who says the market is way too high. Move to cash. Then the next year the stock market is up 20%. That's a very painful decision, not only because of transaction costs but because of capital gains taxes that could be triggered if it's in a non retirement account.
I was going to bring statistics, but I didn't want to bore everyone. Statistics show that -- you can pick your period of time from five to 20 years -- a fair amount of returns are based on a small amount of days. Days where the stock market has had a significant run-up. And if you happen to be out of the market on just a handful of those days, you will significantly underperform the S&P 500. As I said in the beginning, my crystal ball just doesn't tell me when to get in and get out on the proper days. It behooves us all to stay invested for the long term, and we'll get into some reasons when we talk about the short term later.
Cross: I'm losing money. I hear this from friends and family members all the time. Bought a stock at $26 three weeks ago and now it's at $23. I think I'm getting out. I have a floor price I put in and I'm losing money, so I'm getting out. I'm going to sell the stock.
Gross: The stock market doesn't care at what price you bought a stock, by the way. All of your future returns in any stock you own will be based on the future. None of it will be based on the past [so you have to evaluate where you are today or a stock price is today], and where the company goes from here. The past is irrelevant to all investment decisions, which is kind of hard to stomach sometimes.
The same thing goes for I'm making money. Just because you're up on a stock doesn't mean you'll continue to go up. Doesn't mean you'll go down. Doesn't indicate anything, really, because that, again, is based on the past and the past is over. You have to look to the future for all investment returns.
Cross: Who has said this? It can't go any higher. It can't. Netflix can't go any higher.
Gross: It really can.
Cross: Nvidia -- David talked about [it not being able to] go any higher. Again, I hear that from friends and family a lot. I have thankfully not sold some of those stocks, as well. So, it can't go any higher.
Gross: I'll just get back to break-even and then I'm going to sell. That's all I want out of this. That really doesn't work. Usually what's going on is that the company is doing something that is not going well and you're just hanging on because you hate the concept of taking a loss. What ends up happening is you often end up taking a bigger loss because the company just isn't operating appropriately.
Taking a loss can be painful. Psychology shows us that it's more painful than the benefits of a gain. Sometimes it's necessary if you're not feeling right about where a company is going.
Cross: There are a lot of behavioral finance characteristics we may touch on like "the endowment effect." If you own something, you think it's much more valuable than someone who's willing to buy that from you. That gets back to "if I can just get back to break-even." The stock is fairly valued. My friend right next to me here at The Motley Fool...
Gross: I was going to ask you if I could take this one.
Cross: ... was a former value-driven investor until he was converted over to our side.
Gross: I'm still a value guy.
Cross: Still a value guy. The stock is fairly valued. You hear that all the time. There's a lot of nuance to this and we'll talk a lot more about valuation when it comes to selling. The stock is fairly valued and I'm going to sell it.
Gross: Dividend cuts. Paying a dividend or not paying a dividend is a capital allocation decision created by the board of directors and the management team. Most of us like a nice dividend and when it gets cut, usually a stock will take a hit because there's usually a reason for it.
If it is a good reason -- if it is a capital allocation decision that makes sense [a company should really do it to shore up its balance sheet, or a company needs to retain more cash, at least for the time being] -- that's a smart decision. It might be painful in the short term, but it's smart.
If a company decides it wants to go into acquisition mode and needs more cash on its balance sheet then, again, it's a smart time to cut. Just the knee-jerk reaction of a dividend cut should not be a reason to sell. You have to look under the hood to see why this management team is doing so.
Cross: Again, misconceptions. A stop-loss order. We're not fans of those, typically. I know people do use them at times. We just don't think it's a good way to buy and exit stocks [to set prices like that that will kick in if a stock goes below a certain price]. Try not to use them. There are better ways to buy and sell your stocks, including options, as George had mentioned. We're not big fans of stop-loss orders.
Gross: I'll just add this. In my hedge fund days, I never used stop-loss orders because I wanted to be in control of every investment decision. I didn't want anything to happen automatically and if you have stop-loss, you could get sold out of a stock [when you really didn't want that to happen].
Very often we'll see a headline come out in the morning that a stock will be down 10% before the market opens. The market opens down 10-12%. By the time the conference call happens an hour later the stock has come back, because it turns out it wasn't as bad as the headline indicated and you get stop-lossed out of that company. You're like, "Darn, I really shouldn't have sold that company."
Cross: Does anyone own CRISPR Therapeutics ? I think that was down 20% at some point and now I think it's down 6-8%.
Gross: One of my holdings, yes.
Cross: That's right. You own CRISPR.
Gross: I do. Part of my eight-company biotech basket. I recommend it.
Cross: The simple truth is you make more money buying and holding than you do buying and trading. These are Foolish pieces of wisdom that we want to reinforce because investors of all experience levels trade too frequently. I mentioned that. If you buy [well], selling hopefully takes care of itself, meaning you don't have to worry about it so much if you have the right framework. [The goal we set for The Partnership Portfolio ] is 6X/10Y, trying to identify companies that have the potential to earn 6x their value over the next 10 years. That's about a 20% annualized return.
Multibaggers can be game-changing as we know, and it's really painful to sell out of a stock that goes on to generate multibagger returns, as David highlighted for those who lost patience and sold out of Nvidia. Multibaggers can really change your portfolio and your life. Don't sell or at least aim to sell very rarely.
Cross: Now, the reason we're here is there's a big, old "but." There are times and reasons to sell, so let's get to it.
Gross: We've broken the reasons down into three buckets, and the first bucket is the fundamentals of the company. If the fundamentals of a company either have deteriorated or you believe they are going to deteriorate, it certainly is one reason to look at maybe not owning that company. This could be revenues declining, margins are declining, profit is either declining or now there's a loss at the company. Any of those reasons that would indicate to you that profits could be coming down in the future -- it may not be a company that you want to own.
Competitive landscape -- obviously, if a new competitor comes into a marketplace or if an existing competitor ends up having the upper hand. You own a company that is not going to be a market-share grabber in the future. The market share is going to continue to deteriorate and that will hit the fundamentals. That will hit profits and again may not be a company that you want to own.
A platform shift threatens an investment. This is a really interesting one. We were talking about Netflix as a good example of a game-changer.
Cross: The cloud [represents] a platform shift. Look at IBM before they started making a push. Oracle making a big push in the cloud before they were all on-premise.
Gross: Perhaps some of you have heard of Kodak . That was a company that did not benefit from a shift. They did not shift. These are typically big, trending ideas [paradigm-shifting trends] that would be good if we could all recognize them. Sometimes we recognize these a little late, but still better late than never.
A stock is extremely overvalued. We're going to continue to bring up this concept of valuation, because it is somewhat controversial. I think it's fair to say we think it is appropriate if a company is really and truly undervalued such that no matter what you do, the fundamentals don't make sense in terms of where this stock is selling. From a Foolish perspective in that case, alone, we would recommend selling based on valuation.
Value investors like me get a little dicier about it all, but that's really a Foolish principle, and even David Gardner would say perhaps that's not even correct, because he loves a stock the most when Wall Street idiots like me are saying, "overvalued."
Cross: Something we didn't mention, but you know if you follow Tom pretty closely, is you don't have to sell down your entire position. If you go to the Everlasting Portfolio, you will see one share of Intuit . You will see one share of MSC Industrial . We have kept one share. That's to the extreme and not everyone wants to do that, but you also don't have to sell out of a complete position. If you really think it's extremely overvalued and you're just not comfortable with it, you don't have to sell the entire thing. You can pare back a little bit, too. We can take more questions about valuation because it is a fun topic to discuss.
Gross: The next bucket we came up with is portfolio management reasons to sell. This is near and dear to my heart as a former portfolio manager, but a lot of these are actually Foolish principles and not typical mutual fund or hedge fund principles. Certainly the first one is.
If you need your money in the next three years, your portfolio should not be fully invested, as in my example where I have a couple of years of college on the horizon. It's inappropriate, in our opinion, to have that money in the market because you will not have the time to weather a severe correction, which inevitably will come. That's our best advice for that.
A position becomes too large. We heard someone earlier say that would be a reason to sell. Now, the words "too large" is in the eye of the beholder. What is too large? For me, too large is 5-7%...
Gross: Yes, that's my conservative nature. But for some, 25% would be fine if one stock was a quarter of your portfolio and you could sleep at night.
Cross: And from the perspective of letting your winners run, hopefully those stocks naturally gravitate and make up more and more of your portfolio, and the losers make up less and less. That's what you want to see. Warren Buffett has talked about this, too. Those big stocks make up a larger and larger percentage of your portfolio, but it really is down to each individual investor and what you feel comfortable with.
Especially if they may be a little bit higher beta or higher growth stocks, or the valuations might start looking a little bit on the higher side, understanding those stocks could very quickly be cut 20-30% and how that would make you feel with your portfolio [is important]. The last thing you want to do is act irresponsibly if that happens. That's where you want to be very comfortable with that weighting level.
Gross: You found a better opportunity is an interesting one because it applies more to those folks that are managing a fixed portfolio; one that they're not adding too consistently. If you are managing a fixed portfolio, you ideally want that portfolio to be represented by your best ideas at all times. And if you're fortunate to uncover a great idea, you may have to make a tough decision to sell your worst idea, even though you may like it, to free up capital for the new opportunity.
We don't like to do that. It's hard to sell a stock that you've lived with for a long time, especially if you are a long-term investor; but if you want to maximize your returns and optimize your portfolio; again, I think sometimes it's necessary. If you're able to add money then it doesn't become as necessary, because you can just buy that new stock and always be happy with the next new one.
You need to rebalance. This largely is based on your life experience where, let's say, as you're getting older you don't want as much exposure to stocks. Bonds may be appropriate. Cash may be appropriate. Alternative vehicles other than stocks may make sense to you. In those circumstances, rebalancing [reducing your position in stocks and increasing your position in other types of investments] may be necessary. It may help you sleep at night. It may optimize your returns better for your stage of life.
Cross: Financial advisors love this [no offense to financial advisors out there or [those who] work at The Motley Fool], but they talk about rebalancing monthly. Quarterly. ETFs do it all the time. Because we trade so infrequently, and we sell so infrequently, our portfolios tend to be very tax efficient and we don't have a lot of churn. That means that our portfolios would look out of balance relative to what a financial advisor may recommend based on some efficient market theory.
But it does happen, and if you do have money with a financial planner, you will be asked about rebalancing your portfolio. A lot of this gets to comfort level, but you hear that from financial advisors all the time. "Oh, we've got to rebalance your portfolio. Get you more international exposure and sell some of your Netflix when it's at $26."
Gross: Harvest tax loss is another one that financial planners like. There are times where taking a loss to offset a gain will make sense. Most of us probably don't focus on that too much, but it can be financially beneficial. We're all fortunate that long-term capital gains rates are relatively reasonable at about 15%, but there are certain times where you can offset a big gain by taking a loss on a company that perhaps you're not too fond of and being able to keep more of that gain that you generated in a particular year.
Cross: When to Sell: Psychology and Life Choices. I mentioned a little bit about behavioral finance and how we interact with our investments and how we treat our investments. A big one, here, is you're losing sleep over the investment. I mentioned that earlier. Again, if it causes stress and meditation is not helping with that stress... [or exercise, eating lots of chocolate, or whatever you choose to do], if you're losing sleep, it's not worth it. I have been in that situation where I've had stocks that would qualify probably for some of the earlier ones from a valuation perspective that I didn't sell. It actually ended up hurting our returns because the stock had underperformed. I didn't feel comfortable with it, so I should have parted ways with that. I literally was losing sleep over it, which is not good...
Gross: It's not good.
Cross: ... because there is an investment for you.
Gross: Your ethics. At The Motley Fool, we try not to put our ethics on to you through our recommendations, because everyone is obviously different, but I do encourage you to take your ethics and morality into account when building your portfolio.
And whether it's not being comfortable because you think Facebook may not be what you thought it was, or it's a tobacco stock, or it's a company involved in genetic engineering; whatever it is, I think it's perfectly reasonable to have your portfolio reflect your values. David Gardner often says the best world that you can envision is what your portfolio should reflect. I don't say it as eloquently as he does, but that's the gist. I think it's perfectly acceptable to take your own ethics into account. And if something at a company changes, it may be time to say goodbye.
Cross: We invest to make money for ourselves -- for our future, our families -- and to put it to use. So if you need that money to be put to use for some reason [family income situation has changed or you want to buy a home] you're going to have to sell some stocks. Even David Gardner did a few years ago and wrote a note to Stock Advisor members on why he was parting with some of his investments. He was switching homes. So, if you need to use the money, most likely you'll have to sell that stock.
Gross: The same goes for being charitable, whether it's giving money to family members or to a charity and taking advantage of the $15,000 gift tax exclusion on an annual basis. Sometimes it either becomes necessary, or you desire to free up cash for charitable reasons, or to pass it on to the next generation. That's a great reason to sell, as well.
Let's talk about some fun ones where they're kind of a gray area and they're debatable, and I like this first one, because you'll often see in Foolish literature this is one of the first ones. It says, "We sell when our original thesis is busted." I actually don't buy that, because if a thesis has changed, all that means is that now it's a new investment. It's a different investment. It has to be reanalyzed in that vein. It shouldn't be an automatic reason to sell a stock.
Here's a quick example. Let's say you bought a company because you thought they were going to grow organically [meaning by itself] 5-10% over the next 10 years. Then suddenly the company announces it's going to go into acquisition mode and spend a decent amount of money to try to grow revenue 10-20% a year. Now your original thesis is busted. The company is now spending much more money than you thought. They're going to be making acquisitions, which is always dicey, but they're going to be growing much faster theoretically.
Do you sell automatically, or do you reevaluate and decide if that's a company you want to own? I would prefer to reevaluate and see if that was a company that I wanted to own going forward, based on the new information. The old thesis, again, is in the past. The new thesis is about the future.
Cross: The valuation is high. Upside is limited. Again, getting back to valuation. Very nuanced, here. We love to, as much as we can, let our winners run and as investors who tend to invest in exciting technology and consumer-friendly stocks, those tend to trade at higher multiples of earnings, cash flows, and revenues.
I talked about Okta today. From a traditional valuation metric perspective, it's what she values. And some people might not even buy that or some who owned it [especially because it's done so well], might want to sell that for a variety of reasons. I would not. I still think the long-term prospects for that business are pretty remarkable.
However, if it is to a point where a valuation comes into question, that is a debatable one [and] you might think about selling. And how you go about thinking whether a stock is richly valued or not is nuanced, as we all know, when it comes to valuation.
Gross: Theoretically, you wouldn't want to own a stock in your portfolio that you think would not be a market beater, because you could replace that stock with the S&P 500. Then the question is how you tell. That's where it gets dicey and it gets debatable because there's so many ways to theoretically tell if a stock is a market beater going forward.
But it involves so many assumptions that you're almost, invariably, going to be wrong. Value guys try to get in the ballpark and try to get it more right then we get it wrong, but it's not an easy thing to do.
Cross: And by the way, Ron and I actually do talk about this a fair bit. If a company looks fairly valued based on whatever metrics you are using, it doesn't mean that stock's not going to actually grow or that company's not going to grow. A lot of times in theory it will grow at its return on capital. So, it doesn't just mean that a stock is fully valued. Now I'm going to sell and get it out. Even if you are thinking from a valuation perspective, it doesn't mean stocks that look fully valued won't actually perform and grow. They still might.
Gross: That's really important and I want to reiterate something about that. When we put a sell recommendation on a stock, we're not saying that that stock is going to go down in the future. We're saying that stock is not going to generate future returns that are appropriate to whatever strategy we're pursuing, whether it's trying to beat the S&P 500 or another benchmark. Often, we'll put up a sell and someone will come up to me and say, "That stock is up 4% since you said to sell it." And I'll say, "Yes, but the market is up 10%. It wasn't a market beater." That's a key distinction. A sell doesn't mean we're saying a stock is going to go down.
Allocation is too high. We've discussed this a couple of different times. Again, it's debatable. I gave my number -- 7% gets me a little nervous. Some folks use 15-20% and they're fine. It's individual and it's really based on your own personal risk tolerance.
Cross: A key executive leaves. Succession planning. There are some who wouldn't want to own Berkshire Hathaway because the succession planning is not exactly clear. We don't know what's going to happen after Warren leaves. Some may sell on that.
Elon Musk -- we may not know what he has in store. Succession planning is the consideration we put on leadership at the organization. If you don't feel like they've been able to support the organization or can support the organization if an executive, founder, or CEO leaves, that could be a reason that you may want to sell.
There are times when the leader or a founder may be just so ingrained in the organization [like Tesla , perhaps], where that organization might go through some tough periods if that person was to leave. For The Partnership Portfolio , we can talk more about this later today during our main stage breakout. We did think a lot about founder-led organizations, obviously, but also what's behind them. Do they have the kind of support from the corporation to be able to sustain it if, for some reason, a founder or key executive leaves?
There's always talk about Sheryl Sandberg leaving Facebook to go run whatever company you want to name [ Disney always comes to mind when Robert Iger leaves]. If she left, would that be a reason to sell the stock? We don't think it's a reason straightaway; however, it is something that you may want to pay attention to if it happens.
Gross: And be wary of grandchildren. Sons and daughters taking over for a father or mother sometimes can work out. Grandkids almost always screw it up. They've been rich for so long it just doesn't work.
Cross: There's a study out there that says that third or fourth-generation owners of public organizations as they get passed on don't actually underperform the market. Don't quote me on that, but I'm pretty sure it's out there someplace.
As for what to sell, this again gets more nuanced and more particular to each individual, but our advice with a lot of Tom's thinking is to start with companies that you've lost interest in. Like I said, I sold Express Scripts because it was a small part of my portfolio. I didn't feel like owning it anymore. It didn't have my interest. It's a great place to go.
Look more at the bottom than the top. Again, start with your smaller positions. The ones that are less meaningful to your portfolio is a good start rather than starting with your largest portfolios which hopefully are the companies that you have the most confidence in. For me [right now] it's Home Depot and Berkshire Hathaway.
Gross: As we said earlier, it's harsh, but the market really doesn't care what you paid for a stock. The future is the only thing that matters and not the past, so understand that. I wouldn't even look whether you have a gain or a loss on a stock when deciding whether to sell it or not. It truly is irrelevant to the investment decision.
Cross: Remember core principles to your investing approach. How you think about investing. This is your portfolio or the portfolio for your family. How you think about your principles to investing is really important.
I have strayed over the years. Different approaches that I just didn't feel comfortable with and owned stocks that didn't really match the way that I thought about investing for whatever reasons when I got into the stock. I wanted to part ways.
And again, you want to make your portfolio yours. David mentioned that earlier. As best as you can, you want your portfolio to try to represent your belief in the world, or at least start to get there and that approach, because then you're going to be much more comfortable following those stocks. I had Philip Morris for many years, and after I got married, it didn't quite meet the criteria of my family anymore [mostly my wife]. We ended up selling the stock. The same with ExxonMobil .
Gross: A lot of good questions have come in. I think we have some time to tackle some of them. This first one is going to be so painful, though. Painful is in the question. "Please describe a painful 'failure to sell' situation you found yourself in." Any former investors in Horsehead Holding in this room?
Cross: Oh yes, both of us.
Gross: I apologize. This was a commodity company. A zinc-based company. It should have been a home run. It really should have. I just said this to you two days ago. I couldn't let it go. The company went bankrupt, and it was on the wall that the bankruptcy was coming. This is like I'm just going to wait until I get even, but I felt if they didn't go bankrupt it was going to be a multibagger. I held on and I held on. The stock was selling at $0.10, and Rich Greifner over at Inside Value was like, "Hello? Are you going to sell?" I was like, "Nope, nope, no." At this point I don't need the $0.10. It's basically zero. I held on until it was in the garbage and there was a complete loss. Extremely painful. We learned a lot of lessons about that. Don't invest in commodity, cyclical type companies that have balance sheet challenges I think is the takeaway there.
Cross: I still have a Lucent Technologies stock certificate that I did not sell. Not very much, obviously, and then it went through all kinds of problems. I had gotten out of a lot of it and held some. A very painful lesson when it comes to platform shifts. [That's what I learned] with Lucent.
Gross: "Do your rules for selling change between tax-deferred and taxable accounts?" For me it does in the sense that I'm more willing to sell a stock that has a large gain if it's in a tax-deferred account because I won't have the tax bite, but I'm not sure that's necessarily a smart investment decision. The investment decision should be based on the merits of the stock going forward.
But sometimes taxes can be factored into that equation [because that is a loss of capital that you can factor in], but it gets a little bit dicey, there, when you're trying to decide whether you like a company for the long term and your taxes come into account.
Cross: For me, probably not a whole lot. There are some investments, if you're looking for other ways to invest that capital [or] when you're going to redeploy that capital that are better in tax-deferred accounts or not tax-deferred accounts. MLPs, for example. Otherwise, I don't think a lot.
To Ron. "How has your investing changed since becoming a Fool? You were a value investor and still are. What tools or ideas have you added or discarded since becoming a Fool?"
Gross: How much time have we got?
Cross: And maybe tailor it toward selling, too.
Gross: I still am a value investor. I believe in valuation tools to help one make an informed investment decision. I always knew that I was notorious for selling a stock too soon, and quite frankly I justified that by saying it just makes me feel better. But I left a lot of money on the table and there are not a lot of multibaggers in my past because of that.
What I have learned to do a little bit -- I haven't taken my value hat off but have just put it askew -- is I've let really strong companies continue to generate returns and reinvest capital at high rates, and over the years I've gotten more comfortable doing that, even if my Excel spreadsheet tells me to be careful.
There is a time when it becomes ridiculous or extremely overvalued where I will cut ties, and valuation is always a part of my process. It's just a little bit less a part of the process than it used to be.
Cross: "Is there a right amount of number of stocks one should have?" I was talking to a few members today about this, especially as we continue to introduce new stocks into our universe. We have a lot of stocks out there that we have active recommendations on.
It's really individual. We want to make sure you're diversified enough to hopefully be able to ride out some of the volatility, although stocks are very correlated these days, so that might not quite work out. When all investors come into Stock Advisor , we want to get them at least up to 15 stocks. Then beyond that it really starts to vary. I think by last count I had almost 60 stocks if you throw in some of my kids' accounts. Some have even more than that and some have fewer.
It is very personal, but I would definitely strive to get at least more than 15 into your account because that hopefully will give you a little bit of ballast.
Gross: There's a question to me. "Is Tesla extremely overvalued or not?" The way I will answer this question is does anybody listen to the radio show Motley Fool Money ? We talk about Tesla a lot and the valuation comes up a lot.
Here's the thing. I don't own Tesla. I don't think I will own Tesla. It's not necessarily because it's extremely overvalued or not. It's because I can't tell. And the reason I can't tell is because I don't know what it's going to become. It's not a car company. It's not a battery company. It's an energy company. It's a lot of things. There's a lot of optionality. There's no profits. There will be profits. I just don't know. If I don't know, then it's called gambling to me. So, I choose to stay away.
Tom Gardner believes in Elon Musk. He thinks this guy is amazing and he will turn this into something incredible, and Tom is completely comfortable owning Tesla as a result of that. Two different sides of the same stock. It takes two to make a market.
Cross: "Any suggestions on vehicles for keeping gains extracted for the next three years?" I think that means if you take it out of stocks, what do you put it in? We know how little you're making in your bank accounts today. I don't have any particular suggestions in general about that. The real spirit is you want to be able to access that capital as you need it.
[What you want] -- if you need the capital for any reason you set aside -- [is to] make sure you have enough in savings. Rainy day funds, college expense, house payments; then all of a sudden, the capital is not there. You want to make sure that money is safely stored away in some investment vehicle and not really in something that's as capricious or mercurial as the stock market. It really hasn't been over the past couple of years, but it can be, as we saw a little bit this year, and certainly 10 years ago.
Gross: One of these days CD rates will come up to the point where it's a fine place to put your cash once again. It's just been kind of silly over the last bunch of years whether you get 0.1% or something. One day they'll get back up there, but be careful what you wish for, because that takes its toll somewhere else.
Cross: "What should be considered when deciding to sell holdings vs. incurring debt?"
Our financial planners and Robert Brokamp, who runs our Rule Your Retirement service and works with Ron on Total Income , has lots of advice on this. Any high-expense debt you want to try to pay that off as much as possible. This is just general Motley Fool advice. You want to try to pay that down. If you have equity holdings, that might be another good reason to sell and one we didn't address here, but from a use of capital perspective, that could be a good use of capital, especially if it's expensive credit card debt.
Gross: That's for sure. I personally am OK with mortgage debt relative to selling stocks to pay for a house, as long as mortgage rates stay where they have been over the last decade. To me that's a fine use of debt. My friend Buck, over there, and I have sometimes talked about even taking equity out of our homes and putting that in the market.
Now, that gets a little dicey there, because you're playing games. But when rates were 3% it was hard not to think about. I'll take 3% debt all day long if I can earn 10% in the market. I'm not going to advocate that right now, but I do think mortgage debt, as long as rates remain reasonable, is a fine type of debt.
Cross: Again, this is just general advice from The Motley Fool for not any particular case, but the high-expense debt is something you really want to try and avoid as much as you can and certainly we want to teach our kids that as much as possible. I know it's sometimes hard and tempting to do for kids.
Southwick: That's the show for today. It's edited divestingly by Rick Engdahl. For Robert Brokamp, I'm Alison Southwick. Stay Foolish, everybody!
Alison Southwick owns shares of Walt Disney. Andy Cross owns shares of Berkshire Hathaway (B shares), Facebook, Home Depot, and Netflix. Ron Gross owns shares of Berkshire Hathaway (B shares), CRISPR Therapeutics, ExxonMobil, Facebook, and Walt Disney. The Motley Fool owns shares of and recommends Facebook, Intuit, Netflix, Nvidia, Okta, Tesla, and Walt Disney. The Motley Fool owns shares of CRISPR Therapeutics, MSC Industrial Direct, and Oracle and has the following options: short September 2018 $180 calls on Home Depot, long January 2020 $110 calls on Home Depot, and long January 2020 $30 calls on Oracle. The Motley Fool recommends Berkshire Hathaway (B shares) and Home Depot. The Motley Fool has a disclosure policy .