Investing is not only about making money. In an ideal world, we all hope to pick the right stock at the right time and sell it for a profit. This always gives us a good story to tell and we wish we had the same story for each stock in our portfolio. Unfortunately, investing is a lot more complicated than simply picking strawberries during a warm, sunny day with your family.
I started my investing journey ten years ago and made some great moves and some stupid ones too. Over the years, I’ve tried to identify my own challenges, my own investing pain and try to solve them the best that I could. I’m sharing my experience here and hope you will find hints to solve your own investing pain through my story.
Right Time to Buy or Sell
Is there anything more complicated than knowing when is the right time to buy a stock or get rid of it? Building a list of prospects using stock websites hasn’t been a problem for me since my friend and I built our own Excel system that grabs crucial metrics in our investment model from different sources and puts them together. So I don’t have a problem building my watch list, but finding the right moment to buy and sell is more complicated.
When you buy, you want to make sure you do it during a slump because you hope for a quick profit. The point is to not sell the stock right away, but a quick paper profit makes you feel good about your trade, right? When selling the stock; you are stuck in a dilemma; the companies have generated a lot of profit, should I sell now or wait and make more profit? Greed comes into play and it’s always hard to make a decision.
I’ve decided to solve this problem with “neutral” metrics added to my decision. When I purchase a stock, I don’t worry too much about the timing (besides when I seize occasions like AAPL recently). I’m thinking that I’ll be holding this stock for a few years at least so the exact timing of the transaction shouldn’t matter too much.
When selling a stock, I base my decision on the fundamentals that made me buy the stock in the first place. As long as my required metrics are showing in the financial statements, I stick to it. The day it disappears, the stock is not part of my portfolio.
Buying Foreign Dividend Stocks – Tax Issues
Buying foreign stocks is not always easy. First you need more information on the company prior to trading. You want to make sure you understand its economic environment as you understand your own country. Then, currency fluctuations are a pain in your total investment return. Imagine if you pick a stock rising +10% but in a currency 15% weaker than yours during the same time… You lose 5% on a “good trade”. On top of that, you have to make sure that you don’t get hit twice by the tax guys.
In order to solve this problem, I’ve made extensive research for both Americans and Canadians investors. I’ve compiled several sources saying the same thing about different foreign investments. I wanted to keep my portfolio simple so I quit the idea of buying anything else but US and CDN stocks. I think both markets have enough to offer that I don’t need to go elsewhere to find a good stock. Plus, the tax implications regarding dividends is much easier to understand when you are playing with only 2 markets!
I’ve detailed my research and how to optimize your foreign stocks in my book; Dividend Growth – Freedom Through Passive Income.
Manage my Asset Allocation
When I look for a new stock to add to my portfolio, I sometimes feel like a bee going from one flower to another. I don’t necessarily keep my asset allocation per sector in mind. I set my global asset allocation a long time ago: 100% stocks. This was the easy part. However, I’m still struggling when it’s time to diversify my portfolio by sector.
When a sector is doing well, chances are that you will find several interesting stocks showing similar metrics. Since I always start my stock research within a pre-screened list, it happens that I have a concentration of a few sectors. For example, when you look for strong dividend stocks in the Canadian market, most of your screeners will show you 4 – 6 banks (RY, CIBC, BMO, TD, ScotiaBank and National Bank) and 4 telecom companies (BCE, Telus, Rogers and Shaw). If your target is to buy 10 different stocks, I don’t call buying this package a good asset allocation mix. It’s true that they have all performed well in the past 10 years but it’s also true about the banking and telecom industry in Canada in general. If the banking system would be hurt by a potential Canadian housing bubble, I don’t think holding 4-5 banks in your portfolio would be a good idea.
But then again, it’s easier said than done. I know I my affinity for techno stocks, I currently own INTC, STX, AAPL and Telus could almost count as a techno stock. This is definitely too concentrated but I’m torn between a sound asset allocation and the fact that I find so many good investing opportunities in this sector!
As you can see, I haven’t resolved my asset allocation pain. I guess a good idea would be to build a virtual portfolio with a sound asset allocation and try to meld it with my real investment strategy.
Finding Time to Take Care of My Investments
Time is probably another big issue for most investors. We all have a few minutes to look at the market daily and see if our brokerage account went up or down. But how many times do you actually read the financial news, check out financial statements and make sure your investments are solid?
The fact that I work in the financial industry helps me a lot to combine both my job and my passion for investing. Therefore, each time I educate myself for work, I become a better investor at the same time. But if I didn’t work in the financial industry, keeping track of my investments would be quite a challenge. I would be interested in hearing about how you do it, do you use trading alerts? Are there any specific websites or tools helping you to manage your portfolio?
What about You? What’s Your Biggest Investment Pain?
I’m currently working on additional resources to be offered on The Dividend Guy Blog and I need your help with this. Since I don’t want to work for nothing, I want to know what your biggest investment pain is? What is the #1 thing lacking in your investment strategy to make you happy and make sure you are making money from your portfolio? Thx for sharing your thoughts!