Reconsidering Our Rating on Valero

Today's lesson: Be ready to change your position in a stock even if you haven't changed your mind on the prospects of the company it represents. Our model has downgraded Valero (VLO - commentary - Cramer's Take), and we will be neutralizing our pick until the model either warms up to it again or it deteriorates further.

The downgrade of a stock you own, or are considering buying, can be a blessing in disguise, and so it is with Valero. The downgrade provides a good opportunity to revisit some old Wall Street saws -- one of our favorites is "The market can remain irrational longer than you can remain solvent" -- and it reinforces the need to remain disciplined in your investing. That old adage provides some comfort ("I'm not wrong, the market is!"). But we know that's nonsense.

Today's Investing 101 lesson boils down to three simple words: You were wrong. Whether it was an error in timing or in calculation is irrelevant. What matters is what you do as a result.

Stop Digging

When the stars fall out of alignment for a stock, the smartest thing to do is to stick with your discipline (assuming you have one in the first place). Never "fall in love" with a stock, because while your emotions can cloud good judgment, numbers don't lie. We picked Valero as a contrarian play, one with a weak buy-level rating based on lousy growth metrics offset by factors working in its favor (low valuation, strong shareholder returns and a solid balance sheet).

In the short time since we published our pick, however, the trends working against its fundamentals -- mainly the relentless climb in crude oil prices and consequent tight refining margins -- have overwhelmed those that are working for it (mainly institutional investor support based on some of the same factors our model favored).

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This article was written by a staff member of TheStreet.com Ratings.