People love to talk about buying winners because sharing your losers sucks. But every investor experiences them. I have with Uber and Lyft. And I’m going to talk about them now.
Selling a stock can be just as hard as buying one, sometimes harder. That is especially true when we’re losing money. We can get weirdly attached to a stock and resistant to let it go, even if we know it’s the best decision. Doing that would mean we have to admit that we were wrong and other weird psychological phenomena that I won’t get into here.
Taking a Loss in My Uber and Lyft Stock
Last week I sold my small positions in the ride-hailing companies, Uber and Lyft, at a loss. The latter was the larger position, which also lost more money. I think it was down over 50%, maybe closer to 75%. No matter how you look at it, those numbers are ugly. Uber was much smaller, maybe less than 5%, but still a loser. And the saving grace was that they were smaller positions, meaning I invested a relatively small amount of money in them, making them smaller losers. But, to me, they still felt big. Everyone hates losing money. At least I do.
Why I Sold Them
The reason I sold them wasn’t because I’m masochistic or have some fetish with losing money, no. Rather, I felt like these companies were losing because the industry was going to struggle for the foreseeable future. I’ve held on to losing stocks before. But many of them started to swing positive, eventually. Some took longer than others. But these never did. With the pandemic, I think it will be long before people start using drivers in mass.
And regulation is coming down. California tried to create a law where these companies’ drivers will be treated as employees, which didn’t ultimately succeed since Uber and Lyft threatened to shut down their California operations. So the state relented, for now. But stricter laws that protect the drivers looks inevitable in California. And it could spread to other states.
There is still value in Uber and Lyft. People will still use them. People will still drive for them. It is a solid business model. But the scalability, I believe, has lessened. Much of the growth has happened. And the investors who captured most of the most valuable upside were the private ones who bought in before the IPO.
Even With Headwinds, There Is Still Potential
There is still the delivery services, and it appears to be making great headway even with headwinds, replacing the revenue it had in rides, at least for Uber. And that sets up a great scenario where they will potentially have two great revenue sources after the pandemic. And there is a growth story there.
And Lyft looks like they are offering the same service, but I don’t see how well they are doing in it and if they’ve been able to be as successful in pivoting as Uber has. And that lack of visibility may be the reason its stock has performed more poorly than Uber’s.
Also, Uber does have a great CEO, with Dara Khosrowshahi, who left Expedia to take over after Uber’s co-founder, Travis Kalanick, was ousted. But even the greatest CEO would have difficulty navigating a business where a business model dependent on travel is pitted against a pandemic that has kept people sheltered like hermits. Khosrowshahi is a great business leader, but even he has his limitations.
In the long long run, I think they will do well. People need rides; they will need to go to the airport. City dwellers will want to live without cars and have the convenience of just tapping on their phone and getting picked up and schlepped to their destination on their steel chariot. That trend is not going away. It will only grow. But it will take time.
But I don’t think it’s worth waiting.
Closing Thoughts About Selling Tech Stocks
Sometimes it’s best to exit an investment, even at a loss, to get into ones that you believe will have a higher degree of success in the short and long term. The keyword in that sentence is “higher.”
Money is a resource. And if we allocate it in the right vehicle, it can fly to far great heights than you ever imagined it could. That 50% loss can be recovered in less than a year, and you can start having a positive investment soon after that. That is especially true with technology stocks.
Because, often, staying in losing positions makes you lose the opportunity to find winners. See, just because you’re losing doesn’t mean you’ve lost.
Sometimes, you just have to admit you’re wrong, push through the pain of selling at a loss, and find the winner that can give you bigger gains than you thought you could produce.
Sometimes, to win, first you’ve got to lose.