You Bought a Dead Stock: What to Do Now

Pfizer. Merck. Wyeth. Johnson & Johnson. Eli Lilly.

These stocks were sure things back in the 1990s. Investments in even one of them made you a very rich person.

But that was then and this is now. A $1000 investment in Pfizer in 1997 - with an additional investment of $100 a month every month under a plan like that available on Sharebuilder (which would be very dedicated investing) would have meant you had invested $13600 over that 10 year period (dividends reinvested.)

It would be worth “only” $16686 - for a 10 year return of only 22.7%. That’s less than 3% a year!

Who would have thunk it about a company like Pfizer?

How many dedicated Pfizer shareholders are holding on- thinking if they just wait long enough- they’ll see a big upturn on their investment?

Lots.

And who can blame them? As I said, the 1990s were an era of great returns in Big Pharma stocks.

But how do you know when it’s time to stop investing in a Pfizer (or a Microsoft- same story) and instead invest in a Costco or a Google? When do you finally give up on a company and put your money elsewhere?

It’s a hard question to answer. If you’ve been investing in a company for ten years though, you should know its story. You should know, even after five years, if the possibility of a greater return is there.

Warren Buffett has said that the only time to sell is “never.” So should you wait out a company like Pfizer? Even their management has said that they will be growing at only 3% a year for the foreseeable years. Google is growing at 10 times that rate.

It would seem that these stocks that have done nothing and gone nowhere are still not quite cheap enough to take a chance on them. Microsoft and Pfizer are trading under their historic price to earnings multiples, but I wouldn’t exactly call them a steal even at their current prices. Pfizer is at ten times earnings and Microsoft around 21 times. But with a big market sell-off- it’s likely that they will be sold off aggressively.

But should you now sell if you already own them?

Pfizer is paying nearly a 4.5% dividend so at least you get something for your pain. Are you satisfied with a CD rate for your money? No, me neither.

Microsoft pays an even smaller dividend. Its return has underperformed the market in the last year. (the S&P 500.)

It’s hard being a buy and hold investor and seeing everyone else double their money in a few months (or years.)

If you own a true loser like Cost Plus World Market, Pier 1 or others that have simply been money losing companies- sell and don’t look back. But it’s these big caps that are the middle of the road that are problematic. Good companies. Nothing fundamentally wrong with them. Dead stock prices.

Ultimately, a Pfizer or a Microsoft will rise again. The best bet is probably to just sit on your holding and don’t add further money unless the stock goes seriously cheaper. And look at other areas in which to invest your new cash.