There can be many motivations to sell a stock, but for me it usually boils down to one reason. I lose faith in my original investment thesis. That’s what happened with the following three stocks this year as I banished them from my Stocks and Shares ISA.
boohoo
The first stock I sold out of entirely was fast fashion retailer boohoo (LSE: BOO). This holding was part of a position which I first bought at the start of the pandemic. My shares doubled in value in a matter of weeks in 2020 as ‘stay-at-home’ stocks skyrocketed.
However, I sold most of my position on valuation grounds after the stock surged. But not all of it. So why did I finally sell (at a loss) the rest of it this year?
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Firstly, soaring inflation. The company is seeing input costs rise dramatically, like all retailers. But because it specialises in low prices, boohoo has very little in the way of pricing power. So its margins are being eroded. After years of profit, it fell to a £4m post-tax loss last year.
Secondly, competition. Chinese fast fashion giant Shein is swallowing up market share. Shein’s private market value has increased by 840% in two years, while boohoo’s has fell 70%. The firm may turn things around, but I’ll be watching from the sidelines.
Twilio
The second stock I sold was communications software company Twilio (NYSE: TWLO). Its platform enables its customers to seamlessly communicate through any channel (text, voice, email, etc.) with their customers.
Twilio’s electric revenue growth originally impressed me. Yet despite that growth, it has failed to deliver profits, even after 14 years in business. Many hyper-growth companies are reducing their losses this year in a bid to prove their profitability credentials to the market.
Not Twilio, which continues to post steep losses. In fact, the company is getting more unprofitable as it scales. The company posted a net loss of $323m on $943m of revenue in the second quarter this year.
That explains why the stock is down 81% this year. And why I sold my holding.
Baillie Gifford US Growth Trust
The Baillie Gifford US Growth Trust (LON: USA) launched in 2018. I was attracted to the trust because profitable companies like Mastercard and Alphabet were big holdings in the portfolio. I thought their immaculate balance sheets might provide stability during a market downturn.
However, those established firms were jettisoned and replaced with what I considered some quite bizarre additions. For example, the trust bought social media app Snap last year, as it had the “potential to become the first super-app of the west”. On the contrary, I believe it has the potential to lose most of its market value.
Also, used car dealer Carvana and electric truck firm Rivian were bought at what I considered excessive valuations. Carvana stock, by the way, is now down 97% in one year.
Despite this, I do find the top of the portfolio quite attractive today. I like Moderna, as well as the private holdings SpaceX and Stripe. However, they are also at the top of the Scottish Mortgage Investment Trust, which I already have a large position in. So I’ve decided to stick with just that trust instead.
