I almost always eat my breakfast whilst reading the paper and flipping back and forth between Before the Bell on CNBC (GE) and sports highlights. One particular morning while entrenched in my morning routine, before heading to the office, I was completely taken aback – don't ask me why it got me so mad this time, because I have heard it a million times before – when I heard that Citigroup (C) had downgraded Kinder Morgan (KMI) "from buy to hold".
Now, I don't want to talk about Kinder Morgan today (sorry to disappoint), rather I want to talk about the entire idea of a "hold recommendation". And as much as anything I am writing this today to lay down the gauntlet, begging, hoping, maybe even praying for a well thought out and equally well supported answer to my simple question – What does "hold" mean?
Does it mean that if I don't already own the stock I shouldn't buy it? Does it mean that if I do already own the stock I shouldn't sell it?
If so, what does that say to the person sitting there who you are telling to hold, whilst in the same breath you tell another person, "oh, no, don't buy this stock".
Conviction that inspires!
Do you see where I am going with this? How can you say to one person to own a stock and another person not to – is that not by definition contradictory?
The only possible argument (that I can think of anyways) for a "hold" recommendation might be tax considerations or personal circumstance. Perhaps if you hold a stock for another three weeks you will have held it for a time long enough not to get dinged with a higher short-term capital gains tax rate.
But, then ask yourself this, are the analysts at Citigroup, Bear Stearns (BSC), JP Morgan (JPM), and Goldman Sachs (GS) crunching the numbers, running the models and concluding that because Jim in Nebraska needs only a few weeks to qualify this investment as a long term one that they should slap a "hold" on it? Doubtful.
This is not a new idea. In fact this is one of the things that the burgeoning membership to the Investopedia Advisor loves. They love the fact they when they join the service, they go to our three model portfolio and they look at the stocks we are covering and recommending as "buys", they don't have to wonder or question any hold recommendations. Why? Simple, we have taken a bold step in demystifying the world of stocks – NO HOLD RECOMMENDATIONS. Buys and sells. That's it. If you see it in one of our three model portfolios it's a buy.