Before I went on vacation for the Holidays, I mentioned that I was going with dividends all the way in my portfolio. I’m currently reviewing my holdings and trying to sell my other stocks. I have never had any problem with buying stocks as I don’t believe much in market timing. Therefore, when I have liquidity and a stock seems interesting, I just log in and buy it! The real problem comes when I think of selling my stocks…
3 Questions to know if you should sell your stock or not
It’s one thing to go dividend investing; it’s another to sell stocks with good potential. In my current process, I try to ask myself the following 3 questions. They are motivating my choice of making the trade or not. I ask them in order to have a simple yes or no answer. This way, it’s easier to pull the trigger and sell the unwanted stocks!
#1 Do the Reasons Why I Bought This Stock In the First Place Still Exist?
There are obvious reasons why you made such and such moves. They may not be good or rational, but still, you made your trading decision based on something. So before you sell any of your stocks, you must know if the reasons why you bought it are still valid. It can be based on fundamental analysis, future projects or opportunities. Some are more obvious than others to determine. If the numbers are not good, you may want to fire your stock before it burns you!
#2 Does This Stock Fit Into My Investing Strategy/Asset Allocation?
After determining your investing strategy and asset allocation, the very first move you need to make is to get rid of all stocks that no longer fit. So if you don’t want to invest in penny stocks or want to leave American financials, you better sell them right away and start looking at what to buy next.
#3 Do I Expect To Make More Money With Another Stock/Strategy?
In this case, I can also talk about making money with a different strategy. I have been more a growth investor than a dividend investor over the past 7 years. It served me well in the past but I think that I can join growth and dividend investing at the same time. Eventually, I would like to have a complete portfolio paying dividends and invest my liquidity in index funds in the meantime (I’ll explain why I select index funds rather than index ETFs in a further post). But in the meantime, I want to make sure I don’t leave money on the table with my current picks. If I believe that any of my stocks may surge in the next 2 years, I will keep them instead of buying dividend stocks right away.
Do I consider Profit/Loss Before Selling?
While I think I should always stick to my first 3 questions, I must be honest and say that it’s easier for me to sell a stock when I have made a profit than when I’m losing money. I don’t really mind selling a good pick because I would rather cash in than dream of paper profit. When my stocks are losing money, I have a harder time selling because I tend to think (read sometimes imagine!) that the reasons why I bought the stock are still good and that I will eventually make money.
After Reviewing my Portfolio I am now Selling…
ATD – Alimentation Couche Tard: I made money on this stock and I think I will be better served with dividend stocks. Nonetheless, I still think that this is a good pick.
CDV – Com Dev: This was bought based on speculation and hope of better profits. The results are disappointing and it’s now time to say goodbye CDV and goodbye money…
Then I’ll be Selling Later…
PDN – Paladin Energy: This stock was purchased based on the future demand for Uranium. I think the race for energy sources will start again as oil started to rise again in 2010. Paladin is in good position to benefit from a eventual uranium price surge. I’m losing a good chunk of money on this one so I’ll be more patient with this one (I might be wrong but I am willing to wait since it’s in my retirement account).
RIM – Research in Motion: I still think that the company has something to bring the stock back to the $90+ target. While Apple and Google are hitting share markets pretty hard, They are still in a very good position to keep their leader position in emerging markets. I’m sure RIM will do wonders in 2011.
I’m Not Selling…
VNP – 5N Plus: It’s not a dividend stocks but it is definitely promising in my opinion. The company has 60M$ in cash and has several great partners (their 2011 book is full already). First Solar is one of their biggest clients and there are rumors of a potential acquisition…
NA – National Bank: National Bank of Canada is the smallest of the big 6 banks in Canada. However, they are making good profits lately and they will be changing their whole software system (going SAP) in 2012. This will increase their efficiency and open the door for more profits in the future. On top of that, it’s paying a great dividend.
On The Radar…
I’ll be completing my portfolio during the next 2 weeks (I’ll be adding an additional 5K during this period). I’ll present my full portfolio then. In the meantime, here are the stocks on my radar:
JNJ – Johnson & Johnson
CVX – Chevron
BNS – Bank of Nova Scotia
PG – Procter & Gamble
ETR – Entergy Corp
HSE – Husky Energy
T – AT & T
I don’t know which ones will make the cut yet…. More news to come!
In these unusually volatile times, it is prudent to lock your profits since chances are there will be another time to get back into the same stock at lower!
This particular post inspired me to sell my small position in LLY (only 9 shares or so for a couple hundred). I bought it solely because it was on the S&P Dividend Aristocrat List, and now that it has been kicked off, should I shuffle that money into active positions?
I recently wrote my opinion on LLY… wouldn’t buy it in my portfolio 😉
You might want to switch it over to something else (like Chevron 😉 ).
The Passive Income Earner
You have some good picks. I already have BNS and AT&T. Husky is on my radar. I always seem to find better yield over the other picks you have though so I don’t have them yet. They are indeed good picks though.
@Passive Income Earner,
right now, I have the feeling that everything is on sale on the stock market 😉 it’s hard to pick and choose!
I like the picks on your radar. All are solid companies and at a bargain right now. (At least the non-canadian ones – I haven’t started following Canadian stocks yet).
You will see a renewed interest in Verizon now that they are announcing a CDMA iPhone, but VZ is overpriced in my opinion. T is a better choice.
Why are you considering Bank of Nova Scotia when you already have National Bank ? One canadian bank is enough since they are very similar overall.
JNJ seems to be the most interesting stock in your list, i also like CVX and PG.
My top pick would be Cisco Systems right now though.
I like National Bank but it is a small (and more volatile) bank compared to others. This is why I am looking at buying a bigger bank to smoother my portfolio volatility. Also, I really like Canadian financials 😉