I'm still new to investing and have learned many lessons over my first year of reading here at Seeking Alpha. The most significant lessons I've learned this year are:
- Don't be so quick to sell a carefully chosen position.
- Ease in and out of a longer-term position.
A year ago, I was focused on swing-trading much of my portfolio, aiming for a 10% gain within 2-3 weeks, and I held only a couple of stocks as longer-term holds. By longer-term, I was thinking more than one year at the time. Now, I'm focused more on quality Dividend-Growth names, for even longer-term investment, more than years, with only a couple of swing trades at a time.
That transition in itself has been very helpful in the "Sleep Well At Night" department and has dramatically lowered the beta of my portfolio. As I gradually shifted my approach, it took longer for me to realize some of the 'rules' also needed to transition in order to be successful with a longer-term approach. My biggest mistake this year has been to sell equities that hit my former swing trade mental stops of 1% of total portfolio when I'd purchased them as a longer-term hold. The most tragic example of that was selling my first conscious attempt at moving towards a Dividend-Growth approach, Royal Bank (NYSE:RY), at just over $44 a little over a year ago, only to see it rise substantially the next day. Not only did I give up fantastic gains, but also a terrific Yield-On-Cost for years to come. Sigh.
Another example has been Ford Motor (NYSE:F). Being convinced of the longer term prospects of this company, it was one of my first stock purchases. I averaged down and managed several times to purchase additional shares at bottom prices, the last being $9.14 (Occasionally, I do something right) but by mid-September gave up hope of anything ever happening for Ford stock and decided to pare the overweight position and deploy the funds elsewhere. I sold two-thirds and received nearly the best price for that month. Since then, it's risen steadily and I'm happy I kept the rest especially as the current position size suits my much more diversified portfolio. But I've learned my lesson, which is to purchase longer-term investments when there is strong sense of fundamental conviction about the company, have contingency plans, and then have that same conviction not to sell unless there's a real reason. In the future, I will try to view slumping share prices as a great time to buy more.
This leads me to the second lesson. I was told about buying part positions in companies when I first started investing, but it seemed to be such a waste of my $10 trading fees. Plus, who wants a 10% swing of a small amount of money anyway?! So I'd jump 'all in' with large percentages of my portfolio, for better or worse. As I had mental stop amounts this didn't cause too much trouble. Now that I'm thinking as a longer-term investor, easing in and out of positions instead of plunging, is a lesson I've only recently discovered the value of. It has been very helpful in establishing positions in new companies and instrumental in diversifying my portfolio.
Completely contrary to my former belief that it would waste my trading fees, easing in has actually paid for many of my trading fees. Let me explain. In many cases, I have not managed to perfectly time the market and purchase at the very bottom (I know, you're shocked). Now, after initiating a part position in a solid dividend paying company, a few days or weeks later, I now buy another part position, but at a lower price. The difference in cost is substantially more than the extra trading fees I spend. For example. With the recent sell-off, I decided I want to own 200 shares of Coca-Cola Company (NYSE:KO) for a long term hold. Six months ago, I would have anxiously tried to time the market to buy all 200 at once. The $10 trading fee (5c/share or 0.1%) would be negligible on that size of investment and I wouldn't be concerned about it at all. Instead, with new understanding, I purchased 50 shares at $37.80 late in October as the price looked to be recovering on the chart. Well, that ended up being a short-lived little rally and the price soon tumbled. Recently, I purchased another 50 shares at $35.95. The difference in price on the 50 shares is $92.50. Being able to buy more shares at a lower price covers many times the extra $10 trading fee. If, next week, the shares dip below $34, I won't be too disappointed to purchase another 50 shares. This strategy also contributes to the "Sleep Well At Night" plan. I have 21 years until retirement. I have time to wait a little for share price to recover while collecting dividends. If, in the short term, shares go down; I'm thrilled. If shares go up; I'm also thrilled and can deploy my waiting cash into some other deserving company and wait for another desirable entry to KO.
Enbridge (NYSE:ENB) is a company I have timed pretty well (but no promises for the future). By some stroke of providence, I nervously purchased a large position for $28.56 in August 2011 after wanting to get in for months, and another large position on a far less dramatic dip a month later. As this has grown to be a ridiculous percentage of my portfolio, I regrettably sold half on recent highs, and redeployed the cash into 3 separate positions. Again, if this stock dips, I will consider a re-purchase of a much smaller chunk, and if it runs up quickly again I may sell a little more, as it's still one of my largest positions, gently easing in or out, paying attention to the ex-dividend dates. Easing in and less importantly at this stage of the game, easing out will be one of my new strategies for success in the future.
This year, I resolve to diversify into a greater number of solid dividend companies, easing gently into those positions, and to not be so quick to sell those carefully chosen investments.
Disclosure: I am long F, KO, ENB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.