Investing 102

[GregWeld]

Year end is coming up and coming up FAST….


I see several things coming together here to cause the market some angst…


Portfolio rebalancing is something everyone does at the end of the year… what that means is - the big holders will take some gains off the table - they don't sell out -- but they may take some off the top of their biggest winners…

Conversely - they'll balance that "tax wise" by selling some losers… that way you come in at neutral as far as gains and losses are concerned.

So what? Well -- everyone is "into" the same big winners -- so when you have some big holders selling --- then that takes the prices down… and if they're also selling the losers - that makes your losers go down even more. It's somewhat self fulfilling scenario.

NOW --- if you have RISING interest rates -- then the old saying - "when interest rates are high stocks will die" comes into play. IF interest rates are rising - or are seen to be in a rising mode - then the big holders will start to trim interest rate sensitive stocks -- and suddenly your 3% dividend payer doesn't look so hot -- which it was when rates were at 1 or less percent -- and now you can buy a 10 year treasury (tax free) that's paying 3%…. So you have that going on….


So the bad news COULD BE that we have a declining market through the year end… but much of that depends on the economy coming in with some good numbers -- which is GOOD for the stock market because EARNINGS are the real drivers of stock prices…

What's that all mean to us?? Not a hell of a lot. BIG TRADERS or BIG HOLDERS do things differently than you and I. We don't have customers that are demanding we "beat the market" -- we're just investors. Long term investors… we're not on the hot seat to produce on December 31st…. we're looking at December 31st - 15 or 20 or even 30 years down the road.

Yes -- I have sold some shares with losses and I've added some shares with that cash -- and yes I try to be somewhat tax neutral IF -- BIG IF -- I think I have some stocks that just need to be gone or whatever (I actually held too much "Oil" patch stocks -- with CVX - BPT - NTI - KMP -- so have trimmed a couple). My typical positions approach or exceed 1MM per holding -- so when you add them up -- it's worth it for me to balance out a bit. But most aren't in this position ---- and there's no point in selling a holding if you have less than 10K in it! What you want to see is that 10K doubling over the next 10 years to 20K --- ya can't do that if you're scooping off every time you have a "gain".

Look to ADD to your positions -- not sell them out -- if the fundamentals of the company are the same as when you bought it. Put that bonus check to work so that the $1500 becomes 3000…. or piss away $500 of it and save the grand or whatever.

Don't get distracted by all the "noise". If you get nervous -- go back and look at those longer term charts… Sometimes you just have to have faith. Faith in history - faith in the company - faith in the dividend and the compounding.

[toy71camaro]

Originally Posted by GregWeld

. But most aren't in this position ---- and there's no point in selling a holding if you have less than 10K in it! What you want to see is that 10K doubling over the next 10 years to 20K --- ya can't do that if you're scooping off every time you have a "gain".

I was just about to type up that question... on the basis of what should us "small" investors do when we have gains (for example, my $1k purchase last year is sitting at $1.5k with a 50% gain. Do we scoop off the top and redistribute the $500 house money elsewhere, or let it ride).

Looks like you basically answered my question. Let it ride until its a "bigger stake". (or if there is another reason to sell).

But I just wanted to point that out to anyone else that was in the same boat of "what should i do...".

[GregWeld]

Originally Posted by toy71camaro

I was just about to type up that question... on the basis of what should us "small" investors do when we have gains (for example, my $1k purchase last year is sitting at $1.5k with a 50% gain. Do we scoop off the top and redistribute the $500 house money elsewhere, or let it ride).

Looks like you basically answered my question. Let it ride until its a "bigger stake". (or if there is another reason to sell).

But I just wanted to point that out to anyone else that was in the same boat of "what should i do...".

Here's what happens when you sell your winners…. or sell part of your winners… You have to figure out what else to buy with that money --- and then you're getting less dividend which has a large impact on your compounding.

The GOAL here is to have the dividend buying ever more shares --- averaging in automatically --- and you get some upside capital growth along with it.

If you're constantly taking the paper gains off the table - you miss out on the compounding affect.

Now -- if you have 10K in ONE name ---- which means you should have 100K or more invested -- and you have a gain like the percentages you mentioned -- then to skim off 5K and add another name in the portfolio "might" be worth it. But you always have to be mindful of the compounding…

Now again -- I live off my gains and dividends -- I don't need (yes everyone really needs it) compounding… I need (want) the cash to spend… so I'm always skimming or trimming - or transferring the dividend (I do not reinvest it)… but I'm already retired and that's how I live.

What you're seeing -- which is a beautiful thing - is that you now have a 50% increase in capital -- in just one name!! Shortly it could be 200% or 300% -- and that's how this is ALL SUPPOSED TO WORK!! But it won't get there if you keep selling.

Let those winners ride --- and new money should go to new names -- because the more names you have the more likely you are to pick a few winners… and before long -- those winner are contributing MORE to your retirement plan than you are! Now that's a winning situation! That's what we're after..

[toy71camaro]

Great follow up. Thanks for the detailed explanation. When you put it like that, its obvious. LOL.

I kinda knew that. Thus the reason I never did anything about it. But i wasn't confident that was the right answer.

Next year I should be "back in business" investing. Bought a house at the beginning of this year and it wiped me out. But, my emergency fund is almost done, and then i can start parkin money for retirement and savings (to invest outside of retirement accounts - which i haven't done yet. Thats a whole nother ball game due to the tax aspect that I haven't even started yet). And hopefully with the house this year, I can get something back on taxes to dump in the Roth too. lol

[GregWeld]

As long as we're on "year end" thoughts…. Here's a "notion" that always kills me when I hear it.


A guy is looking over his portfolio -- he has new money to put to work. He AVOIDS buying the stocks that have gone UP…. Why? Because they've gone up!


Really??

So you're unhappy because they did what you want them to do?????? Explain that to me please…


I had said that I bought 500 shares of Twitter (TWTR) and that I would possibly increase this stake to 1000 total shares. I just bought the other 500 this morning. Why now? BECAUSE THEY'VE DONE WHAT I WANTED THEM TO DO --- THEY'VE GONE UP.


If you go back and look at the long term (3 plus years) charts -- You WANT them higher on the right than the left side! So if you use that logic -- then there's no way you're not going to pay more for the new shares than you did the old. (Averaging DOWN is a different story! Not to be confused with just building a position).


If you owned 100 at $40 a share -- and you pay $45 for the 100 new shares -- you still own shares at below the current market trade price. You now own 200 shares at $42.50 and the stock is trading at $45 What's wrong with that??

[bdahlg68]

Absolutely. Never be afraid to buy a stock that has gone up unless it would skew the % of your portfolio in that stock. Call it what you want - dollar cost averaging, averaging in, nibbling - whatever makes you happy - but it is one of the fundamentals of being a successful investor!

Originally Posted by GregWeld

As long as we're on "year end" thoughts…. Here's a "notion" that always kills me when I hear it.


A guy is looking over his portfolio -- he has new money to put to work. He AVOIDS buying the stocks that have gone UP…. Why? Because they've gone up!


Really??

So you're unhappy because they did what you want them to do?????? Explain that to me please…


I had said that I bought 500 shares of Twitter (TWTR) and that I would possibly increase this stake to 1000 total shares. I just bought the other 500 this morning. Why now? BECAUSE THEY'VE DONE WHAT I WANTED THEM TO DO --- THEY'VE GONE UP.


If you go back and look at the long term (3 plus years) charts -- You WANT them higher on the right than the left side! So if you use that logic -- then there's no way you're not going to pay more for the new shares than you did the old. (Averaging DOWN is a different story! Not to be confused with just building a position).


If you owned 100 at $40 a share -- and you pay $45 for the 100 new shares -- you still own shares at below the current market trade price. You now own 200 shares at $42.50 and the stock is trading at $45 What's wrong with that??

[SSLance]

I'm sure this was probably covered earlier in the thread, but maybe things have changed since then...and it's something I'm looking at now so why not ask?

Who are you all mostly using for investment accounts these days?

I grew up in the investing world where you either paid hefty commissions on every equity trade or you paid a management fee quarterly to get the free trades. These days with Etrade, TD Ameritrade, and others doing free or very low cost trades...who is the hot ticket to use?

To me, if there were several houses that offered basically the same account fee structure, I'd be interested in the one that has the best\easiest to use research tools built into the online account.