Earlier in the year I took a loss on Hewlett Packard which I bought close to $41 and sold at $36.50. It was the worst single stock loss I had to take in years because the position was big and the loss was large. It was difficult as a value investor to sell the stock at seven times earnings as usually when a stock becomes cheaper I buy more. The loss is still very fresh in my memory.
At the time I bought Hewlett Packard I overlooked some blemishes because it was getting hard to find any stocks that met my criteria. My general thesis was that even if one removed all the earnings from the consumer PC division the stock still traded cheap.
When HP reported earnings the CEO reported problems in the consulting division, which I assumed until that point was the most solid part of the business. He blamed the previous CEO for starving the business in order to make earnings numbers. As the preceding CEO was a former GE guy who always beat the number it was not hard to believe. At that point I was not sure what I could trust as it took the new CEO six months to figure this out.
I have a general rule that I don't own what I don't understand. At that point I realized that I did not have a full understanding of what I owned and it was possible that the new CEO did not know either. Taking a large loss is one of the most painful things for me in investing but I knew I had to do it. My principal of needing to understand what I own has kept me from losing money in financials the past few years as well as saved me from an even larger loss in HP. I feel slightly better about my HP loss today.