Dividend Growth Investing, Retirement Income, Stock Market Investing, Stock Market Timing

The Fourth Principle: Know When to Sell!

I am not talking about everything… only a stock that just isn’t doing for you what you bought it for.

My simple point is: You can get the first three principles right about knowing what market we are in, knowing what to buy, and knowing when to buy… and still not get it right! In which case, you’ve got to make a decision about when to sell that particular stock.

Since I chart for things like Forecasted Earnings per Share, Dividend Payout and Share Price, I can usually see when an issue is not behaving in the manner that I think that it ought. Typically, the EPS line starts to look a little weak, but that the share price had already begun to demonstrate that weakness, as there are ‘people’ who know of the coming weaker EPS numbers before others, and they are selling out ahead of the greater public. Besides the weaker price and EPS lines, there comes the threat, then, to the safety and future growth of that company’s dividend.

As I watch these things unfold, I then determine the circumstance under which I might most likely part ways with my shares. The ‘last straw’ is when the latest dividend payout and dividend increase just doesn’t meet my reasonable expectation. By that point in time, I am either selling, or looking for a subsequent rally, that I will believe will lift the share price of my issue a bit, and give me a bit more return as I let it go.

One of the very greatest advantages that I have come to experience and learn as a serious stock investor, is that it appears to be unnecessary to have to sell anything at a loss. These companies have typically been in my portfolio for some time. They have also been acquired in increments during previous low-risk market entry opportunities, and I’m able to sell them for some degree of capital appreciation, even if only a single-digit gain. But, in no case, have I had to sell one for a capital loss! There are no words to express how incredibly beneficial this is, in comparison to the trader of lower-grade issues, that really needs to make snap judgments and act quickly. High quality companies do not tend to move either greatly or quickly, and they do tend to increase in share price during general market increases, even when they might be looked upon as being something of a ‘weak sister.’

The determination as to when to sell is, without a doubt, the most subjective aspect of my strategy. I sell when I think it just makes the better sense than to keep it. I realize that doesn’t help any great deal. But, as you perceive that one of your holdings just doesn’t seem to be ‘pulling its weight’ for you, you can begin to consider under just what specific circumstance you’d be ready to pull the trigger and jettison it from your portfolio. In the past 4 years, I’ve only had to let 9 different issues go. And, in every instance, I always have a list of potential candidates in place, which meet my strictest criteria, from which I would be willing to plug in a replacement for the company stock that I let go.

One of the keenest observations that I have been able to make is how that as I release a holding, seemingly that company never gets back to showing up in my daily search and sort, which kind of serves to confirm for me that I had made the right decision. It’s necessary to develop some kind of plan or rules by which you know when you would sell.

Here’s to your successful investing!
Harold F Crowell

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