Facebook and the Problem with Short-Term Investing

Facebook (FB) is one of Wall Street’s great growth stocks. But it hasn’t been great to me and my wife. And therein lies the problem with short-term investing.

Facebook’s Rough Week

Back in October, my wife and I decided to add Facebook stock to our long-term investment portfolio. Key words there: long term. In the five months since, FB hasn’t been great, falling 4.3% as of this writing—the only loser in our investment account!

Of course, all of those losses have come in the last few trading days, as Facebook stock plummeted from 185 to 166 on Monday and Tuesday (it regained some of those losses on Wednesday, jumping back above 170). Bad publicity from the Cambridge Analytica data harvesting scandal has been the culprit. Who knows when the dust will fully settle on that—perhaps a few days, perhaps a few weeks. But eventually, investors will get over it. The embarrassing headlines about Facebook’s unknowing role in a conspiracy to influence voters in the 2016 presidential election will disappear, and this mini-sell-off in FB stock will look like a blip.

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Now, when you’ve only owned a stock for five months, this kind of blip—a 10% drop in two trading sessions kind of blip—is much more impactful. When I logged out of my TD Ameritrade online investment account last Friday, Facebook was still showing a profit, albeit a modest one. By Monday morning, it was a loser.

If you’re a trader, and short-term investing is your primary, if not sole, focus, then a 10% decline in two days is possibly grounds for selling the stock. Mike Cintolo, chief analyst of our wildly successful Cabot Top Ten Trader momentum-investing advisory, typically recommends loss of limits of no more than 10% to 12%. But Facebook is not the type of stock Mike usually recommends.

Like Amazon (AMZN), Netflix (NFLX) and Google (GOOG)—which along with Facebook comprise the so-called FANG stocks—Facebook has been growing for years, and is likely to continue doing so in the coming years. It’s a revolutionary, trailblazing company that still dominates its field, is making money hand over foot ($5.49 per share in 2017, 54% higher than 2016 EPS), and is well-run despite its Cambridge Analytica humiliation. In short, it’s the kind of stock you can buy at any price and hold onto for the next five, 10, 15 years.

Short-Term Investing vs. Long-Term Investing

If I had bought Facebook shares a year ago, I would be sitting on a 20% profit. If it was two years ago—50% profit. Five years ago? 555% profit!

You get the point. If you’ve owned Facebook stock for almost any length of time more than a year, you’ve made money. That’s why I’m not selling any time soon, no matter how far the current bad news-induced sell-off pushes it down. I know that Facebook will be back. And this could actually be a good time to add more shares, at a temporarily depressed price. As Warren Buffett once said, “Be greedy when others are fearful.”

Short-term investing is different. And if that’s your preferred investment approach, I highly recommend subscribing to Mike’s Cabot Top Ten Trader advisory. (To do so, click here.)

But if you’re investing for the long haul, hoping to build a nest egg for your retirement years or save for a child’s tuition, Facebook is one of the best long-term investments out there. A few down trading days won’t change that.

Chris Preston

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Comments

  • Barbara B.

    Now I don’t know what to do. I was going to sell my FB stock due to Mike’s statement that it was no longer a leading stock, and as my profits have dropped from $1600 to $994 this week. I have it scheduled to be sold Monday morning, but maybe I should cancel the order based on this article.

    • Chris P.

      Hi Barbara. If you had already planned on selling Facebook based on Mike’s advice, I’d say go ahead and do it! The stock has plummeted even further since I wrote this article in the middle of last week. And if you’re a growth-oriented investor accustomed to following Mike’s advice, I’d stick with whatever he says. Hope this helps! -Chris

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