Chipotle Mexican Grill, Inc. (CMG), Cliffs Natural Resources Inc (CLF): So, You Lost Most of Your Investment. Now What?

The response to the changing economic environment by the company was good, and I once again have reason to believe that the worst may be over.  There was quite a price war between players like Cellcom and the new contenders trying to offer the best deal to Israeli costumers. One of the side effects from this was that Cellcom Israel Ltd. (NYSE:CEL)’s revenue per customer dropped big time in 2012.  But some analysts now think that the promotions will be coming to an end, and revenue per user should jump back up.  With a forward P/E currently under 3, this might now be a double down candidate.  (And, for the sake of transparency, I personally tripled down recently.)

Cut your losses, learn your lesson

There is another side to the double down coin.  It’s called “cut your losses and learn your lesson.”  Sometimes you’re not going to want to invest more money into a company because frankly, you’re doubtful of the company’s future.  Might I suggest this may be the case with Cliffs Natural Resources Inc (NYSE:CLF).

Plenty of people are telling me that this stock is cheap right now and that the Chinese economic slowdown has been greatly exaggerated.  And that may be true.  The issue for me at this point are the questionable management decisions that have gotten Cliffs Natural Resources Inc (NYSE:CLF) to this point; the greatest of which may be the $1.4 billion hit the company took as a result of their Consolidated Thompson acquisition.

Companies that make $1 billion mistakes don’t make me comfortable in investing.  Sometimes it may be tempting to double down on a company just to try to earn your investment back.  But that’s not how investing should be.  You should only buy companies that you believe to be winners, who have room to grow over the long term.  Cliffs Natural Resources Inc (NYSE:CLF) just isn’t that for me.

Conclusion

We aren’t trading stocks.  We are buying businesses.  Sometimes our investment will lose money.  It is there that we should reevaluate our view of the company.  If our convictions about the quality of the business remain unchanged, consider doubling down.  If we now see the company in a new light, it may be time to move on.  Fortunately there is a silver lining.  Even when we lose an investment, we can learn from our mistakes, and become better investors in the future.

Jon Quast owns share of Cellcom Israel. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill, Inc. (NYSE:CMG).