I’m going to be a little more patient and I won’t sell this stock… not just yet
I’m 100% sure you have already said that a million times about a losing stock in your portfolio. Holding a dead cow in your portfolio is probably the worst thing you could do as a DIY investor. But it’s hard to sell. It is! Selling a stock is ten times harder than buying one. When you buy, you do it with the clear intention of making money. As a bonus, you select a dividend stock so you can receive an investment return quarterly while you hold it. Sometimes, we make bad investment choices. This usually happens when you don’t follow your investing rules. This is what happens, in my case, most of the times I don’t follow my investing guidelines.
Over the month of August, I completed three more transactions: 2 Sells and 1 Buy. I can tell you that selling my stocks was tougher than finding a new company to buy!
Selling a Stock at a Loss
This is definitely the worst case scenario; you buy a stock and hold it thinking you will make profit. One day, you or someone else bursts your bubble and you realize that you will not be making money with this investment. Even worse; you might even lose money! Once it’s sold, it’s not paper loss anymore, it’s cold hard cash vanishing.
This is what I did when I sold 5N Plus (VNP) a few weeks ago. After their latest quarterly result, I finally dropped the hammer. The company was back in black ink but it was pure accounting magic. The company’s order book kept shrinking and resource prices are not going anywhere. I took a bet on this company as I was fairly bullish on rare earth metals and thought VNP was clearly a leader in this industry. I didn’t expect to see the company financials being beaten-up by their acquisitions. This is what happens when you take a huge bite of a triple ghost jalapeno burger without a glass of water or something else to help digest.
I had the patience of a gambler in front of a slot machine. I kept losing money on paper for over a year and didn’t do anything. I should have sold when this position was generating 50% profit… instead of losing 67% of its value.
I regret not selling faster for two reasons:
#1 I didn’t earn any dividend payments during this period (since this stock wasn’t paying any dividend)
#2 I let several great buying opportunities fly under my nose over the past 12 months (most of my Best dividend stock picks for 2013 are beating the index since the beginning of the year)
I guess this is the first investing rule I should always obey: “when a stock doesn’t meet your entry criteria anymore, it’s time to sell”. Some investments can be boosted by speculation on future projects or a better economic environment, but once the company doesn’t bring the results to the table, you should get rid of it in a heart beat. You will save a lot of money by picking a better company right up front instead of desperately riding a dead horse.
Selling a Stock for a Profit
The same day I sold VNP, I sold another stock. This time, I made money on it! I sold my position in Intel (INTC) generating a healthy 14% profit (not counting dividend payouts received). Intel is a good example of what I should have done with VNP while I had the momentum.
Intel recently showed signs of a business slowdown. The PC industry is lagging and INTC hasn’t shown (yet) their ability to move successfully into the mobile and tablet business. They are still the most important player in the processor business but since sales are not going to grow in the upcoming years, this company just doesn’t fit in my entry criteria anymore. If I wouldn’t buy a stock today that I’m holding, the best move I could do is to get rid of it, right?
This is what it makes a good trade: selling a stock that doesn’t fit your portfolio anymore but generates a profit! I received annual dividend payments exceeding 4% of my cost of purchase during the time I held the stock and made a good capital gain on top of that. If INTC sales lags, it will be hard for them to increase their profits. If the EPS doesn’t grow, it will be hard for them once again to increase their dividend. Therefore, there is no point of buying the stock. I can sell it while there is interest in it and speculation around their future. I might be right, I might be wrong about my timing in selling this stock. But what really matters is the fact that I’m making money with my transaction. What happens with the stock afterward is none of my business anymore. You can torture yourself by checking your previous position and see if you left money on the table but it’s like stalking your ex on Facebook; it will only hurt you.
Buying a Winner!
Yeah… this is probably what we all think when we make a purchase, right? I covered Wal-Mart (WMT) last week… and you can guess that I liked this company. This is why I used the money generated from VNP and INTC to buy WMT. I think Wal-Mart has all the potential of growing its dividend over the next 10 years and it is fairly valued at a P/E ratio under 16.
Wal-Mart will also be a stock that is easier to follow than resources and technology. This is why I can sleep well at night and won’t worry about a potential meltdown.
What do you think of my trades? Any Wal-Mart buyers out there?
I should have sold more INTC too. I sold a bunch last year though so I thought I’d hold on to some. Now, I regret not selling everything. That’s ok, dividend is good and I’ll sell next time they go up.
I need to sell some losers soon to offset the gains too. I’ll probably sell in October. We’ll see.
Was this the stock that put your moniker (Dividend Guy) in question?
I will not buy anything unless it pays me something. Otherwise it is like you stated – sitting in front of the slot machine waiting for a payout.
I got shot down with Nortel. At lest if they would have apid a dividend they would not have been a complete loss. I do not drip any stocks as I prefer to diversify my holdings with the dividends.
I’ve made the mistake of holding onto a company for too long before. Recently I just sold 3 of my stocks. Made a nice profit from them and that’s all I can expect. I like Wal-Mart too, but have never thought about owning their stock until I saw your WMT analysis. They’re on my radar for now but I need to save up some more money before continuing to invest. I do have Target (TGT) in my portfolio as a long term, buy and hold position though 😀
Nothing wrong with cutting a company loose if it no longer fits your goals. I’ve had my patience tested with INTC as well. They have not made the inroads into mobile like I thought they would have by now. They’ve been slow to the party, but they have some new products coming out later this year that will spell out their future (for better or worse). However, if operations do not improve materially over the next year I’m going to move on.
I don’t think you can go wrong with WMT. Certainly, I think their biggest threat is e-commerce but I still can’t imagine a world where people don’t go to the store and do the majority of their shopping for everyday goods in person.
Best wishes!