Dividends and If you sell, are you taking profits or timing the market?

As an dividend investor, your interest is over the long term which means you are not necessarily selling every week or month, but there is always the questions when do you take profits. For dividend investors, as long as the dividends are sustainable and the company is profitable, there is not a heavy need to sell. You can either reinvest the dividends, use the dividends to buy other companies or use it for your life, hopefully there are options for you. If you look at Fortune 500 companies 20 years ago and compare them with today’s companies, the names change which means you will have to do something.

Recently Terry Cain wrote an article about how and when do you sell? Most of us invest to make more money. what happens when you do. Do you let it ride? allowing you to know your research and decision making was accurate and the market agrees. Do you sell some? There is no perfect answer.

Professionals who run firms have different ideas: some not do like to sell winners, there key is sell losers as soon as you determine they are not working out. (in many ways this is a method index funds work – the S&P tosses out the losers and keeps the winners).

When you buy a stock and it goes up, does your homework show the stock is above its intrinsic value? Extraordinary few stocks go up in a straight line, so if your company does why does it? what is the competition doing? what is the market seeing? should you take some money off the table because invariably the price will fall.

The reality is if you can buy a great stock after the price has fallen, the stock will eventually rise back to its heights and likely surpass it. You will have made money by having cash available to buy low. Fortunately dividends help ensure you have some cash available to wait for great opportunities.

Linking to dividend paying stocks, the wonderful thing about selling is there is no perfect answer but it is much nicer to sell after profits have been made than before hand. Hopefully you had good reasons to buy a stock and if those reasons still are valid it is worth keeping. In simple terms of a dividend stock if the company is profitable and can continue to pay dividends, ideally increasing the amount every year, then you have the wonderful luxury of taking your time to make a decision.

There are more questions than answers, till the next time – to raising questions.


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