If you haven’t sold your Boeing stock yet, you’re probably an investor who does not have a sell strategy. That’s akin to going sailing on the ocean without a life preserver.
Let’s review the purpose of owning stocks, so that you can clarify your investment strategy. Then we’ll ask ourselves, “Does Boeing (BA) still deserve a place in my investment portfolio?”
Have an Investment Strategy
We buy stocks – shares of ownership in corporations – so that the money we’ve saved has the chance to grow at a faster rate than we can otherwise receive from bank savings accounts, bonds, fixed annuities, and other fixed income investments.
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The first step in stock ownership is developing an investment strategy. You can start with a strategy that you adopt from a famous person such as Peter Lynch or a financial website such as Charles Schwab & Co. (SCHW), or you can start by buying random shares of companies. Either way, you’re going to begin gaining experience with stock ownership.
Your investment experience is supposed to assist you in refining your investment strategy, so that you do not make mistakes tomorrow that imitate mistakes you made in the past. Again, you can learn these hard lessons through trial and error, or you can study the guidance that’s widely available from investment professionals.
Now let’s cut to the chase with Boeing stock, because we don’t have room on this page to discuss everything you ought to know about stock investing: balance sheets, products, CEOs, technical analysis, CAGR, diversification and so much more.
The reason that I would not have owned Boeing stock in recent years is that the long-term debt-to-capitalization ratio has been very high. This debt ratio is a slightly obscure number that many investors ignore, but it has served me well in that when I stick with companies that have a debt ratio below 40%, they never get into financial trouble. They don’t take annual losses, they don’t cut their dividends, and they have the financial freedom to hire employees, expand their product lines and make acquisitions without looking over their shoulders at looming principal and interest payments. Boeing’s debt ratio is currently cited as 61% by CFRA (formerly Standard & Poor’s) and 75% by both MarketWatch and Charles Schwab & Co.
But what if somebody had given me Boeing stock as a gift?
If the stock does not fit my investment strategy, which is specifically designed to lower several specific risks associated with investing, then I’m going to immediately plan my exit strategy. My exit strategy has nothing to do with the CEO’s future vision, my capital gain or loss, current news headlines about the company or the number of Wall Street buy/sell recommendations. Once I know that a stock does not fit my investment strategy, I go right to the price chart. Technical analysis will tell me how to proceed. If the stock is falling, I will sell it promptly. If the stock is trading sideways, I will use a stop-loss order right below the trading range, and I will sell at the top of the trading range. If the stock is rising, I will use a stop-loss order to protect my downside, while letting the stock rise. As the stock advances, I will raise the stop-loss order.
Eventually, the stock will sell. I will not look in the rearview mirror and monitor the stock’s subsequent price action. I literally do not care what the stock does after I sell it. I only care that (a) I’m invested in high-quality companies that have been screened for risk, so that I can relax about the stocks that I own, and (b) I’m continuing to do ongoing research so that if I need to sell a stock due to deteriorating fundamentals – balance sheet numbers, earnings growth, etc. – I have several excellent stock ideas at the ready.
Why You Should Sell Boeing Stock
There is one major component of my sell strategy that’s directly related to the current Boeing situation regarding recent plane crashes and the subsequent grounding of Boeing 737 Max 8 and 9 airplanes. I mentioned this key point in my March 1 article, Four Important Reasons Stocks Fall: a stock falls when a company announces significant bad news. Here’s the excerpt:
“It’s time to be concerned, and ready to take action, when news emerges that damages a company’s multi-year financial prospects or reputation. Whether it’s several years of misstated earnings (Hertz Global Holdings (HTZ)), suspicion of revenue fraud (Valeant Pharmaceuticals, now named Bausch Health Companies (BHC)), the unexpected death of a key-man CEO, the loss of a major client or cheating on emissions tests (Volkswagen AG (VWAGY)), the stock will fall, continue to fall, and then stagnate. It could be years before the stock price recovers.
“When these types of ugly scenarios occur, you’ve got to be able to take off your rose-colored glasses and say to yourself, ‘This is bad news. This news is not going away quickly. As a matter of fact, more bad news will probably emerge.’ A classic case of bad corporate problems that led to a significant and prolonged drop in a share price is the recent case of General Electric (GE). Due to corporate mismanagement that allowed a variety of financial problems to flourish, the stock fell throughout 2017 and 2018, losing about 75% of its value.”
Boeing is in the middle of a very bad situation: two of its new model 737 Max 8 airplanes have crashed, and its airplanes are being grounded around the globe. This situation continues to unfold, with more bad news emerging daily. The stock is falling.
The bad news is not going to suddenly go away. Save the rose-colored glasses for viewing your toddler grandchildren and imagining their bright futures. It’s going to be a bad year for Boeing stock. To remedy this situation and give you more peace with your stock portfolio, you can take the capital that’s currently invested in BA stock and buy shares in a great company whose share price is actively rising, like Apple Inc. (AAPL).
Stock investing is a learned skill. It can be complicated and frustrating. It can also be lucrative, exciting, interesting and fun. Nobody’s going to be great at stock investing right out of the gate. It takes practice and discipline. Anybody can watch a stock go up 50% and pat themselves on the back. But the amount of wisdom you exhibit on the darker days will determine your long-term success.
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