As a kid, I loved roller coasters. The wilder the ride, the better. As an adult investor -- not so much.
So after four head-spinning and whiplash-inducing months, I have bid adieu to my 100 shares of General Dynamics (GD). I gratefully decided to take my modest profit and invest it elsewhere.
I initiated my GD position on Aug. 22 at $66.06 per share. I considered it a fair value if not a screaming buy, and I was heartened by its 21-year history of dividend growth, its price/earnings ratio of about 10, and its payout ratio of 29%. Its yield was 3.1% -- solid, if not spectacular.
It was the only defense industry company in my growing 25-stock portfolio; I hope to own 40 to 50 companies once I complete my accumulation phase. Even back in August, there was plenty of talk about the fiscal cliff and its potential negative impact on the defense industry. That didn't deter me because I figured something would be worked out, even if it was only a kick-the-can fix. (I still doubt Uncle Sam will stop financing ways to kill our real and perceived enemies.) After doing my due diligence, GD seemed to be a sound play in the sector.
Although I am a long-term investor who has developed a good deal of patience when it comes to buying and selling decisions, I do have the bad habit of checking out my investments regularly. Sometimes I look several times a day -- darn that "Portfolio" tab on Seeking Alpha! So I routinely watch the prices of my holdings (as well as those of companies on my wish list) rise and fall and rise again and fall again.
Of all the companies I owned, GD drove me the most crazy. Within two days of my purchase, it lost nearly a buck. A week or so later, it was down another dollar -- only to surge two bucks a few days after that. Hmm, I thought, what have I gotten myself into?
General Dynamics then traded in a fairly narrow range, until the election. It reached $69.95 in the hours before President Obama was voted back into office, but plummeted to $61.70 by Nov. 16. I felt like I had developed "investor's vertigo," and the $51 dividend I received on Nov. 9 hardly stopped my bald head from spinning.
GD has climbed steadily since then, and I decided I'd sell if I could pocket a small profit. When its price reached $69.65 on Christmas Eve, I made my move. After figuring in trading costs and the dividend, I came out about $400 ahead. That's a 6% profit in four months, so I guess I should be thankful.
The purpose here isn't to disparage General Dynamics or to encourage folks to buy, sell, or hold it. The purpose is to underscore that each of us must be comfortable with his or her investments.
My portfolio mostly includes companies with beta scores well under 1.00. GD's is 1.24. Such volatility might have been more acceptable if the stock yielded 4% or 5%, but GD's yield has fallen below 3%. Ultimately, I decided that this particular ride offered too few thrills and too many chills.
So, what did I do with my $400 profit? It is part of the fairly large cash portion in my IRA as I wait for clearer signals regarding the fiscal cliff and other financial flashpoints.
As I wrote in this recent article, I anticipate many buying opportunities in the weeks and months ahead. I'll try to avoid acquiring companies that will trigger investor's vertigo. If I do happen to climb aboard another uncomfortable roller coaster, hopefully I again will realize it early and bail out before sustaining any real damage.