Years ago my father gave me some good advice about investing that, like a lot of good advice I’ve received from my father over the years, I often ignored. 

That advice was to sell a stock anytime its value fell by more than 10%. 

He meant, I believe, anytime the value fell relative to the broad market. I’m not a believer in trying to time the market, so a market wide sell off is something I typically endure. But in looking back at my portfolio over the last several years, I think I would have been well served to take that advice with regard to stocks that fell sharply relative to their peers. Certainly in the case of GE, I could have spared myself a lot of headache by heading for the exits once I saw the first 10% drop in value. 

More recently, both Clearway Energy and Senior Housing Properties Trust have suffered setbacks greater than 10%, and I’ve held on. In each case, it would have behooved me to sell after the first drop and then consider taking new positions after the stock fell further. But here I am, stuck in the middle with…well, with you if you bought on my earlier recommendation. 

So what to do now? Both companies are hampered by uncertainty related to external business partners. Clearway Energy (CWEN) counts the California utility PG&E as a major client. Yep, the same PG&E that has sought bankruptcy protection in light of its possible liability for last fall’s catastrophic California wildfires. Questions remain about its ability to pay Clearway for the energy it buys from Clearway’s renewable energy platforms. 

In the case of Senior Housing Properties Trust (SNH), one of its major lessees, Five Star, has announced that it is uncertain if Five Star can continue as a going concern. In its earnings release this week, SNH said that it is in negotiations with Five Star to try to resolve the situation and hopes to have some sort of resolution within the next 60 days. SNH said the result of those negotiations could affect its distributions to shareholders. (The company pays a dividend of about 10% based on Friday’s share price.)

While I regret not shedding shares at the first sign of trouble, I’m not planning to do so now. Hindsight is 20/20, and I certainly should have followed Dad’s advice. But at this point, I think the risks are so fully baked into the stock price of both companies that it would be foolish to sell. I’m hoping shares will stabilize and climb out of their funk once some of the uncertainty about their business environment clears up. But only time will tell if I’m right. And, as any reader of this blog knows, I’ve been wrong before.

Stay tuned.

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