Holding for the Long Haul

Editor's Note: This column was originally published Dec. 9 as part of TheStreet.com Value Investor, a premium subscription service by Arne Alsin. We hope you enjoy this special bonus issue of TheStreet.com Value Investor. To subscribe, please click here for more information.

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It's not hard to find world-class businesses in the stock market. To name just a few, Wal-Mart (WMT - commentary - Cramer's Take), Microsoft (MSFT - commentary - Cramer's Take) and Dell (DELL - commentary - Cramer's Take) are very impressive companies.

No, the market doesn't lack for great franchises. What the market does lack is great franchises at great prices. Those are very hard to find. When you're fortunate enough to buy a great company at a great price, avoid the temptation to turn it for a quick buck.

Once I latch onto a great idea, I'll hold on to it for a period of years, even if it means passing on other opportunities. For example, I have no intention of selling Hasbro (HAS - commentary - Cramer's Take), which I originally told RealMoney readers about in December 2000 when it traded at $10 per share, from my privately managed accounts. While it was a great franchise at a great price when I first highlighted it, it's a great franchise at a reasonable price today. It now trades at around $21 a share.

Why not sell Hasbro, then, in pursuit of the best current alternative? If I'm not allocating fresh capital to the stock, why continue to hold it? How do I reconcile owning a stock with the fact that I'm not willing to buy it at the current quote?

Subscribers have asked me variations of these questions many times. Should prudent investors sell stocks like Six Flags (PKS - commentary - Cramer's Take), which is up 29% in just a few months? Should they be sold in favor of other, cheaper alternatives?

I think the answer is no, if you sit in the same position as I do, with a low cost basis. Before I discuss some additional reasons to hold fast to these stocks, let me state the obvious: The cost of selling Hasbro and the others is too high. The haircut on capital -- net of taxes, slippage, commissions, etc. -- is too steep a price to pay. The tax burden for Six Flags is especially onerous because it's a short-term gain.

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At time of publication, Alsin and/or ACM was long Hasbro, Six Flags and Liz Claiborne, although holdings can change at any time.

Arne Alsin is the founder and principal of Alsin Capital Management, an Oregon-based investment advisor and portfolio manager of The Turnaround Fund, a no-load mutual fund. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Alsin appreciates your feedback and invites you to send it to [e-mail]. Click here to receive Arne's latest favorite stock picks from his newsletter, TheStreet.com Value Investor.