When Do You Sell?

This is not much of an actual post as it is an information gathering session.  I have recently been consumed by the thought of when should you sell a stock.  Specifically, can you use selling a stock that has experienced an increase in price to enhance the overall value of a portfolio?  If so, how???

I started thinking of this after reading an article over at Seeking Alpha which you can find here.  I’m working on an article and trying to clarify my thoughts, but I feel they are even less clear than before.

So, I’m reaching out to you dear reader in hopes that you will share with me what your thoughts are on selling to enhance your portfolio.  Should you?  Under which circumstances would it be advisable to do so?

I look forward to hearing your responses.

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Limit Orders

As I mentioned here I’ve been watching INTC for over a year now.  The last few weeks it has risen to the top of my list of potential buys.  I had decided that 22.50 would be the price I would be willing to buy.  Now the 22.50 is kind of arbitrary, other than the 4% yield on cost there is not much reason for insisting on 22.50 price point.  I think INTC is trading at a reasonable level.  I liking getting stocks at the lowest price possible.  This is usually not practical and I have yet to call a stock I have initiated a position at its bottom.  INTC hit 22.50 on Wed. and I missed it.  Blah…

Limit Orders 

Many of you have probably utilized limit orders for sale or buy purposes.  This week is the first time I’ve set one up.  Through a brokerage account it is not very hard to set up a limit order.  Select the stock you are wanting to purchase, enter limit order as your buy option, and enter the price you are wanting to pay.  Simple eh?  Yes it is.  I kick myself for not setting this up earlier.  Lesson learned.

Call it patience (sounds better) or just being stubborn (closer to the truth).  I will continue to wait for the price to come to me and not just settling for what the market gives me.  It may take another year.  That is ok, when it comes to investing and life in general I am in no rush 🙂

Have a great weekend guys and gals!

Foundational Reading for Recovering Spendthrifts

It seems to me that in the world of personal finance/investment blogs you have two traditional camps.  One is that of the natural-born saver who has it programmed in his/her DNA to save money.  This behavior comes natural and is no more challenging than breathing.  The second group is at the opposite end of the scale and is where I spent a large portion of my life, the non-saver and overspender.  This group usually has survived their wars with financial mismanagement, but not without their share of casualties.  When I began my road to financial independence via fiscal responsibility I did so with over twenty years of overspending and over leveraging to overcome.  Changing such a basic part one’s personality does not come without serious effort, but where does this change come from and how is it reinforced?  Today I’m going to share three books that I consider foundational reading for anyone contemplating a change to their financial behavior.  If you’re going to change the way you do anything in life you need a good example of not only the principles required for change, but examples of what will replace past behavior.  These books offer just that.

I.  Your Money Or Your Life by Joe Dominguez & Vicki Robin

This is a really great book for both the information it contains and the entertaining stories.  If you’re new to the financial independence idea or how to go about simplifying your life and developing a plan for how to attain financial independence this is a great place to start.  The book is made up of nine steps designed to reshape your relationship with money.  If you are careless with money like I was these steps are invaluable, but you have to do the exercises in the book if you really want to gain the value that it contains.  Come on, I know I’m not the only person who usually just reads the exercises, but fails to actually do them.

II.  Walden by Henry David Thoreau

You can’t go wrong with Thoreau.  It was after reading this that I really started questioning my wants and what I actually needed.  Granted Thoreau can be a bit dry in places, but the story of his two years at Walden Pond are incredible and the commentary he gives on the superfluous nature of man when he wrote this some 150 years ago could be an accurate description of us today.  Actually it’s quite interesting to see how the nature of mankind has not changed much in the past 2000 years.  I’ve just finished reading Letters from a Stoic by Seneca and he has the same complaint.  At any rate, Thoreau makes a good mentor for the newly frugal.

III. Early Retirement Extreme by Jacob Lund Fisker

If you have read the first two books you are ready for the treatise of achieving financial independence in record time.  This is not a quick read nor easy.  You will want to set aside some quiet time and put your thinking cap on.  This book reads like a work in philosophy.  It is jam-packed with information and will take a while to digest.  The first half of the book questions the current consumer society we live in and offers viable alternatives.  The second half of the books is a how to manual.

I would read Your Money or Your Life First.  This will set you up for a new way of thinking and give some entertaining stories to keep you interested.  Jacobs book would be a great choice when you’re ready to replace your psychological furniture versus just rearranging it.  When you get to the second half of the book I would pick one item and work on it for a while.  If you try to apply everything that is suggested you will probably get discouraged and give up before you have even started.  Remember, changing your orientation to money and how you use it takes time.  It’s not a sprint that you endure until it’s over, it is a fundamental change of how you live your life.

What books have you read that you think should be added to this list?  Have you read any of the ones listed here?  What did you think?

Reflections

This is going to be a different kind of post.  For those who come here expecting commentary on my investing activity you will be sorely disappointed.  I will try to tie it into why we invest, but I make no promises.

Wednesday Dividend Mantra had a nice reflective post on why he continues to work and save: to one day enjoy beautiful days without work taking away from it.  It reminded me of the balance I have been trying to find this summer: enjoying today while planning for tomorrow.

After reading his post I thought for a while about how many todays I’m willing to sacrifice at the expense of a comfortable tomorrow.  How do I balance the want/needs of the Mike today versus those of the Mike tomorrow?

I recently purchased a motorcycle.  I’ve wanted one for sometime, but had never learned to ride.  A friend of mine was selling his and I figured it was a good chance to get a small beginner bike at a decent price.  I have not been disappointed.  In my first month of motorcycle ownership I logged 2064 miles.  Riding is a beautiful thing and brings great joy to my life.

Last night I had my first accident.  A dog ran out in front of me and I hit it.  It dismounted me from my bike and other than some road rash and busted up hip, I think I will be ok.  Any accident you walk away from is a good one in my book.   This post is being written early in the morning with a nice bourbon buzz and a brain permeated with the effects of pain killers.  The reader has been warned.

The fragility of life is nothing new to me.  My line of work has brought me in contact with the newly dead as well as those who have been dead for some time.  I’ve seen children die and the elderly come to the end of their life.  I’ve watched peaceful deaths and deaths come in moments of tragedy, souls given up too soon.  Last night wasn’t a near death experience for me.  I didn’t see my life flash before my eyes or anything quite so dramatic.  I did have a strong urge to talk to the ones I love most and an almost instantaneous realization of what truly matters to me.  Pain brings an instantaneous recognition that you are here, that you exist and for the time being you will continue to do so.  I am hurt, but not injured.

WAKE UP!!!    You and I are much more than our saving rate, dividend checks or net worth.  Life is temporal and we dishonour it most when we insist on making it permanent.  I’m not suggesting we all go out and spend our saving on whatever.  I merely suggest we find balance in preparation for tomorrow with the enjoyment of today.  Our days are numbered.

Stop.  Take stock of your life at this point.  Are you happy?  Are you happy to a degree that reflects the fact that at this moment you exist, you, mere human that you are, have come into existence for a brief amount of time.  What will you do with it??????

May your days be long and your enjoyment run deep…

From The Watch List

I keep a watch list of roughly 15-20 companies that I would consider adding to my portfolio if they represent a good value.  There are several good companies out there that I would love to add to my portfolio, but they do not come with appealing valuations at the moment.   So, what does it take for a company to have an acceptable valuation for me to purchases shares?  I imagine each investor has his/her own method, as for me I use the dividend discount method to give me an idea of what the fair value for the company should be.  It’s not a perfect method, but it is useful in narrowing the list of candidates.  I also like to see a P/E under 15 and I also look at the moving averages of a stocks price.   Stock prices are not static, they move in the direction of the market as a whole and are a reflection of what is going on in the company itself.   I would much rather be buying shares below that average than above.  There are other factors that I like to see in a company, such as manageable debt levels, dividend payout ratios, dividend growth, and EPS growth.  My methods employed may sound simplistic to some and complex to others, but what you really want to concentrate on is the underlying principle behind the effort that goes into determining fair price, which is the concept of margin of safety.

Investing comes with risk and investors try to manage that risk the best they can.  Diversifying is one tool in which we can mitigate some of the risk.  Buying with a margin of safety is another and you achieve a margin of safety by not over paying for your shares in companies.  I think most investors would be well served to  spend more time diversifying and entering stock positions with a margin of safety than they would worrying about selecting the perfect stock.

Getting back on track…  I want to share with you guys a few companies that I’m looking at now that I feel are getting close to ideal candidates for The Stoic’s portfolio.

Excelon Corporation EXC

Excelon is a utility company that rose to the top of my list because of its dividend yield rising above 6%.  The past month has not been kind to EXC.  It’s stock price has dropped about 11% in just over a month.  It is trading at near 52 week lows.  My concern with a EXC is the fact that it is not a dividend grower.  In its place I like WEC.

Intel INTC  Intel adjusted its earnings guidance lower and the market did not like the news, not even a little.  It traded at 25.09 on Thursday and closed at 23.20 Wed. of this week.  For me INTC is getting really close to a buy.  I actually did add a few shares on Friday, but I’m wanting to open a larger position closer to a 4% yield.  I let INTC get away last year when it was just under $ 20 a share.  I then watched it go up to over $29 a share.  Even with lower guidance Intel is a strong company and one I believe will continue to be a player in the tech markets.

Lorillard LO

Lorillard came to my attention last week thanks to a post by Six Figure Investor.  I had heard of LO before along with the other major cigarette companies.  At the time LO was a bit pricey, but with its recent price decline, 5.3% dividend yield and 12% dividend growth averaged over the last five years I’ve become interested.  I almost opened a position today at a price of  115.76.  At the last minute I decided to wait.  Seeing that it was up to 116.84 in after hours trading I’m not sure if it was a good call or not…

It should be obvious that I have not elaborated on what other reasons any of these three stocks would make for good investments or not.  I’ve listed a few companies that have piqued my interest based mostly on recent price moves.  The underlying companies behind  the stocks seem to be worthy of further consideration.  Always do your own due diligence and don’t rely on my commentary or anyone else for that matter.  You know your goals and you know what investments will get you there.  Good luck.

I’m always interested in what you guys have to say.  Let me know what you think of these companies and if you have a few of your own you are considering.