Micro Blog #22: I Missed Out on Potential Gains by Selling Too Soon

I hate selling stocks as I'm a long-term investor. However, I find myself selling stocks more often than I like. When I look at all my sales of stocks in the past three years, I find myself cataloging those sales into three main categories:

1) Sold because of overvaluation (yellow circles)
2) Dividend was cut or at risk of a cut (red and orange circles)
3) I just don't like the company anymore (X)

Click on the Chart to Zoom-in

I can easily justify sale due to reason 2 (dividend cut or risk of a cut)) by looking at the chart above as most of the stocks (MAT, GE, HCP, NYCB, MCI) I thought would cut a dividend or at risk of cutting a dividend, haven't done well since I sold them. Only COP and TGH have done well despite dividend cut and that is because they were suffering from an industry wide issue and not a company specific issue.

Sales due to my not liking a company (reason 3, shown as a X in a chart) can also be easily justified. If I don't like the company I buy a stock in then it's very likely I will not keep myself up-to-date in monitoring what's going-on with the underlying business. Also companies or management that are not trust worthy or have done something ethically wrong would fall under this sale category.

Now, coming to the reason #1 Overvaluation, where majority of my sale falls into, also shown with yellow circles in the chart. Almost all of these so called overvalued stocks have performed well since I sold them. What a bummer!

Conclusion:

I missed out on more potential gains by selling companies because I thought they were overvalued, than I did by any other reason for the sale. It's hard to tell the top, just like it is hard to tell when the stock has bottomed. I'm surely no expert in market timing, just as most of the retail investors.

For long-term dividend investors, perhaps it's better to keep the winners and let them run while collecting/re-investing dividends than to try to second guess the top and losing out on potential long-term growth. Over time, winners should offset the losers by a big margin, while increasing cash flow with dividend re-investment.

Comments

  1. Mr. ATM, I generally let the winners run. Although it's not the best reason, I don't like paying capital gains taxes so I usually hold on. Tom

    ReplyDelete
    Replies
    1. Same here, I like to avoid capital gains taxes as much as I can, but within a reason. In other words, if there is a risk of losing my unrealized cap gains or if I need to raise additional cash then I would take some gains regardless of tax consequence.

      I do regularly keep track of my tax bracket through out the year and know exactly how a specific sale would impact my taxes. I've a spreadsheet to track that too :)

      Delete
  2. Awesome graphic presentation as normal, Mr. ATM. I was surprised that you sold Microsoft. I think there is more room to run. Over $100 anyways. But we shall see. I've been wrong once already this year. Take care my friend!

    ReplyDelete
    Replies
    1. Thanks DS. Actually, I sold MSFT because I had a very small position in it and before I could add more, the price took off. So, in a way I missed adding to it and didn't think price was going to come down to a yield I wanted. So I sold it to raise some cash and bought another dividend stock that met my criteria. Nevertheless, it was a hard decision to sell MSFT.

      Delete
    2. Soon after I hit the submit button, it dawned on me that the yield was probably not up to your liking at this stage in your life. Makes sense to me.

      Delete
    3. Yeah, I would have kept MSFT but it wasn't a big enough position for me and it didn't seem I would have got the price or yield I wanted to add more. So, I painfully took the profit and applied it to one or two of my existing positions, building them up.

      Delete

Post a Comment

Popular posts from this blog

My Dividend Radar

Building A City Of Dividend Stocks

How To Speed Read An Earnings Report In 60 Seconds Or Less

Micro Blog #26: My Dividend Glide Slope

Micro Blog #28: My April Stock Buys

Micro Blog #21 My Tactics For Investing In Dividend Stocks

Micro Blog Post #30: Taking Advantage of High Yielding Dividend Stocks to Pay for Healthcare

Micro Blog #25: Some Utilities are Wolves in Sheep's Clothing