The market tried to take my confidence away Tuesday, but I wouldn't let it. I've been investing in growth stocks long enough to know that taking losses is part of the game.
I was long shares of Edwards Life Sciences (EW) headed into Tuesday, but I'm not anymore after the company issued a revenue warning late Monday.
Was it frustrating to take a loss? No question about it, especially when sell signals were virtually non-existent in Edwards ahead of the news. When I sold, did I think I was selling right at the low for the day? Absolutely. But I didn't let emotion get in the way of making the right decision.
My reasons for buying Edwards Life Sciences at $106.65 in early September were sound. Fundamentals were compelling and the stock was in a bullish technical setup. Many will say fundamentals remain strong at Edwards with full-year profit expected to rise 30% this year (compared to 2011) and 28% in 2013.
But institutional investor sold the stock in spades Tuesday after the company forecast third-quarter sales of $448 million, well below the consensus estimate of $476.6 million. CEO Michael Mussallem said the company expects "a strong rebound in the fourth quarter," helped by pending Food & Drug Administration (FDA) approval of the company's Sapien heart valve to treat high-risk patients.
You'd think a statement like that would've softened the blow, but that wasn't the case. Buyers were nowhere to be found Tuesday and the stock finished near its session low. Volume totaled nearly 8.9 million shares, well above its average daily volume of around 750,000 shares. A huge volume surge like is a result of big investors liquidating positions.
I didn't want to argue with the market, so I cut the Edwards loose at $88. Sure it hurt, but so goes the world of growth-stock investing.
When Edwards gapped down at the open, I asked myself is I should give the stock some room and hope it finds support at its 200-day simple moving average? I learned very early on in my career about the emotions of hope and fear on Wall Street. Investors are hopeful when they should be fearful and they're fearful when they should be hopeful. Investors sitting on a loss right now in Edwards are hoping the stock goes back up, but holding and hoping can result in an even bigger loss.
It's possible that some analysts will defend the company in coming days, but what's clear right now is that institutional selling in the stock Tuesday will take a while to recover him. When a stock falls out of a favor on Wall Street, it usually takes time for it to regain favor, if it ever does.
I don't regret selling one bit.