DaVita Inc

No, I'm not going to ignore it. DaVita Inc's (DVA) third quarter earnings missed estimates but even more concerning is that the company stated that they were uncertain about 4th quarter performance. They were so concerned about it, the company did not give specific guidance for the coming quarter.

Accordingly, the market sold off the stock. It sank 9% Friday. I have been doing this blog for a little over 3 months now and this is the largest one day drop for any of the stocks I have held. Not only that, this drop wasn't in reaction to other factors, such as RIG reacting to oil or ABX reacting to gold. This is a company specific issue.

So, what am I to do with the stock? Since I added the stock in mid September, it now has shown a loss of just over 1% with Friday's drubbing. I'm holding on to the stock for the time being but I am going to watch it's performance over the next few days closely. If it continues to fall (beyond what the overall market does), I am going to ditch the stock if it falls another 4%. I'll cap my loss at 5%.

You get many divergent advice on what to do with your stock holdings. Some say, buy and hold and only check your stocks once a year so you can re-balance your holdings. Others say you need to sell out of a losing stock to put your money to better use...which means you need to keep closer tabs on your portfolio.

What you need to do is somewhere in between. You purchase a stock as an investment, something you are going to hold, presumably forever. Think Berkshire Hathaway. But you have to have a game plan. For example, my plan with DVA is to limit my overall loss to the stock at 5%. If the stock had sold off and the company was more certain of their performance going forward, I may have given it more room to the downside.

But the same applies to the other direction. I held Las Vegas Sands for over a 50% gain. But I knew that the company was headed towards a fall. It was just too hot. It posted lower guidance for the third quarter and lost 15% over 2 days. I was out long before the fall. I sold out on September 24th, LVS has lost 11% since that time.

You need to keep the pulse of the companies you hold. I suggest if you own individual stocks...you need to check them at least once a week or so. Know when their quarterly earnings reports are coming out. Read a little bit about the company again before they report. And know what gain or loss you are comfortable with. Knowing what you are going to do and what risk level you are willing to take....that is more important than any advice that is given.