This is probably the most agonizing decision that most individual investors face and constantly go through. The biggest problem I have found in my own investing life has been reacting to the daily financial news blaring at you every day.
So what to do? Just shut it out and by all means don't react to it. This is death to your long term plans and could end up costing you a lot of money. Nobody can predict the future and chances are you suck at it too.
None of us has a crystal ball and because of this most individuals should pay someone to do their investing for them or just buy an ETF or index fund and let it ride. By doing that you will eliminate all temptation and decision making. This will work for a lot of us.
Since this is a blog about building a dividend growth portfolio, we'll concentrate on the when and how of buying and selling.
When to Buy
These again are not easy decisions. Simple but not easy. I am just going to go over what I've learned and what and how I buy stocks for my portfolio. This may not work for you or in fact you have a better way.
- buy what you know
- search for a yield in the 4-5% range
- don't buy anything yielding less than 2%
- look for quality stocks 10% off their 52 week high
- start looking at banks, telcos, utilities and/or REITs
- insurance companies and some low yielders like industrials (railways)
If you have ever driven through the downtown of any major Canadian city you will see that the tallest buildings belong to banks and insurance companies. There is a very good reason for that. They make the most money and pay the best dividends out to shareholders.
When to Sell
Probably the toughest decisions we are faced with in our portfolio. Get used to holding quality stocks and not looking at them every day.
Ask yourself this question after you buy something, " Will it be worth more 10 years from now?" If you answer yes to this question then the price you pay for it today won't matter that much and you won't be inclined to sell on any bad news. These might be just some of the reasons to part with your stock;
- as soon as a dividend cut is announced
- when the company you own is being acquired
- after a 20% decline in stock price (my personal loss tolerance)
- the company has changed philosophy going against your own ethics
- you need the money
The bottom line here is that if you own and stick to quality names you will never have a market reason to sell your stock. All bank stocks including dividends will be higher in 10 years than if you bought them today. They just will.
News of the Day
Never ever react to or invest on the day to day news spewed from the idiot box. These are stats mixed in with entertainment. Viewers are required to pay the bills and advertisers.
It's fun stuff unless you sit in front of the box sweating it out all day wondering if the risks you are taking will pay off. The solution to that is NO risky bets. Stick to what you know and use on a daily basis. You own a cellphone? Who is your plan with? Chances are if it's worth using then it's worth owning. Buy your cell provider's stock. I own BCE and Telus for these simple reasons.
Buy and stop doubting yourself. Keep your eyes focused on the long term prize ahead.
Related Post: Buy for the Dividends
Recommended Reading: The Ultimate Dividend Playbook
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