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Having been an investor since the 1980s, I’ve made my fair share of mistakes. However, in close to four decades, I don’t recall losing money on any US shares I’ve owned. Alas, one S&P 500 stock looks like breaking my winning streak, as it’s almost halved since I bought it!
Missing the Target
Currently, my family portfolio contains over 30 UK shares and US stocks. We own US mega-cap tech stocks for their growth potential, plus FTSE 100 and FTSE 250 value and dividend shares for passive income.
Sometimes, I spot hidden value in the S&P 500, when businesses trade on lowly ratings or offer superior dividend yields. Once such company was Target Corp (NYSE: TGT), a huge American retailer I believed had recovery potential.
Unfortunately, Target shares turned out to be a falling knife, rather than a fallen angel. Yet again, I was lured by attractive fundamentals into another value trap. Over one year, the Target share price has plunged by 30.2%. Even worse, the price has crashed by 45.1% over five years, making it one of the S&P 500’s worst performers.
Sell or hold?
Famed American investor Peter Lynch once warned, “Selling your winners and holding your losers is like cutting the flowers and watering the weeds”. His advice is to pull up a portfolio’s weeds by selling losing stocks, while keeping tight hold of top performers.
In pounds sterling, the value of our shareholding has collapsed by 44.8% — our worst performance for more than 15 years. Even so, I’m in two minds what to do with my family’s stake in Target. I decided to ask AI chatbot ChatGPT for help.
As expected, ChatGPT’s reply was even-handed and guarded, because it’s not a registered financial adviser. However, it did ask me about Target’s strengths and weaknesses and why I invested in this company in the first place.
First, this share-price crash is company-specific, with other retail stocks and the wider US market doing rather well. Hence, when sales growth resumes, this business might rebound hard. As ChatGPT puts it, “Don’t sell simply because the price falls, unless the company’s prospects have changed”.
Second, I bought this stock for its generous dividend yield, which rises as the share price falls. Today, it stands at over 4.8% a year, one of the most generous in the S&P 500.
Third, I’m investing for the long run and can tolerate volatility, plus I don’t need to panic sell or raise cash. As ChatGPT adds, “Some investors even regard a steep drop as a potential ‘buy the dip’ opportunity”.
I’ll hold for now
ChatGPT also suggests “a sustained deterioration in business quality” as being a good reason to ditch a stock. I don’t see this at present. Plus I’d hate to ditch our stock only for Target to have a bumper holiday season.
Therefore, I’m going to sit on the fence by keeping hold of our Target stock until its next update in early 2026. But if the business performance and key metrics (sales growth, earnings, and cash flow) deteriorate yet again, then I’ll probably get shot of Target.
Furthermore, with better investing opportunities elsewhere, my wife and I have a pot of cash waiting to take advantage of other market bargains…
