Retirement Strategy: My 'Buy The Dips Portfolio': When To Add, When To Sell, And My Ultimate Format

 |  Includes: AAPL, CVX, F, GE, JNJ, KO, MCD, MO, MSFT, PFE, PG, T, WMT, XOM
by: Regarded Solutions


Now that I have launched the Buy The Dips Portfolio (BTDP) the question from newcomers is when to buy or add and when to take some profits.

While I fiercely subscribe to a dividend investing strategy, I still am flexible when it comes to securing good entry points as well as taking profits.

My complete chart offers a rather simple and easy to follow guide, without fancy graphs or hard to follow technical analysis that does NOT always work anyway.

The launching of the BTDP was established to compare active portfolio management to passive ETF investing. Since then it has taken on a life of its own and I have been receiving many direct messages about the portfolio and whether now is the time to buy or not.

Keep in mind that we are overdue for a correction and this new portfolio was actually built during a dip, ergo the name; Buy The Dips Portfolio. While there is never an easy or risk free answer as to when to buy or sell to take some profits, I can only share what I actually do. It was not long ago that I stopped day trading and using all the technical analysis graphs and tools so I can tell you that my experience was always just so-so.

Timing the market, no matter what technical analysis you use is still one big guessing game with fancy names, initials, and projections. Anything suggested other than that is simply a load of money making BS as far as I am concerned. The money making is done by those who sell the stuff, not from the vast majority who employ them.

A Simple And Easy Tool To Use When Tied To Basic Fundamental Analysis

Let me be very clear about this: Nothing is perfect, nor risk free! That being said, I learned a long time ago that keeping investing simple took many of the headaches, and most of the mystery out of investing for me. Using my own approach, I found that it took much of the fear and confusion away as well, so I felt it would be helpful for some folks if I shared my approach.

Using the BTDP as the focus example, I rounded out a chart with various target prices to either buy, add, or sell some shares.

The BTDP consists of the following stocks: AT&T (NYSE:T), Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), Coca-Cola (NYSE:KO), Procter & Gamble (NYSE:PG), Altria (NYSE:MO), McDonald's (NYSE:MCD), Chevron (NYSE:CVX), Apple (NASDAQ:AAPL) General Electric (NYSE:GE), Ford (NYSE:F), Microsoft (NASDAQ:MSFT), Wal-Mart (NYSE:WMT) and Pfizer (NYSE:PFE).

52 wk lo 52 wk hi TGT PRICE Symbol Shares Orig.Yield Dividend Yrly Income Share Price Tot.Cost Tot. Value 30-May Tgt Price % To Sell Tgt Price % To Sell
31.74 39.01 35.37 T 300 5.60% 1.84 552 31.95 9585 10641 $35.47 $47.00 25% $64 50%
84.79 101.74 91.72 XOM 100 2.80% 2.76 276 90.05 9005 10053 $100.53 $135.00 25% $180 50%
81.71 99.38 90.54 JNJ 100 3.10% 2.8 280 86.78 8678 10145 $101.45 $129.00 25% $174 50%
36.83 43.43 40.13 KO 200 3.00% 1.22 244 37.21 7442 8180 $40.90 $56.00 25% $75 50%
73.61 85.82 79.72 PG 100 3.10% 2.41 241 75.71 7571 8078 $80.78 $108.00 25% $150 50%
21.11 28.09 24.61 GE 300 3.60% 0.88 264 24.35 7305 8001 $26.67 $36.00 25% $49 50%
92.22 103.71 97.91 MCD 100 3.50% 3.24 324 93.02 9302 10143 $101.43 $140.00 25% $186 50%
109.27 127.83 118.55 CVX 100 3.60% 4.28 428 111.14 11114 12278 $122.78 $166.00 25% $222 50%
385.11 575.14 480.12 AAPL 15 2.25% 13.16 197 526.45 7897 9844 $632.56 $783.00 25% $1,053 50%
33.12 38.58 35.85 MO 100 5.20% 1.92 192 37.71 3771 4155 $41.55 $56.00 25% $75 50%
12.65 18.02 15.34 F 400 3.20% 0.5 200 15.15 6060 6572 $16.43 $23.00 25% $30 50%
28.51 41.66 35.08 MSFT 200 2.80% 1.12 224 40.16 8032 8190 $40.95 $60.00 25% $80 50%
71.51 81.37 76.44 WMT 100 2.50% 1.92 192 76.11 7611 7676 $76.76 $114.00 25% $152 50%
27.12 32.96 30.04 PFE 200 3.20% 1.04 208 32.18 6436 5926 $29.63 $48.00 25% $64 50%
Click to enlarge

Make sure you open up the full chart to see everything clearly, but here are the basics:

  • The 52 week high and low prices are updated as of 5/30 as are the target prices to buy or add shares in each stock.
  • The target price is to be used as a guide, and actually more for adding on dips rather than opening positions. The reason for that is that I believe it is more important for the long-term investor puts money to work sooner than later, and the actual first purchase share price is of minimal value compared to the effect that compounding of dividends will have over a lifetime.
  • Of course there are investors who will prefer to wait for lower prices to open positions and if that is what you choose, then you can certainly use the target price as a guide to at least give you an idea of a fair price.
  • The target price is the mid-point between the 52 week high and low, and while you might never get the lowest price, you probably will never pay the highest price either. Since the forward P/E metric goes in conjunction with the current share price, your own P/E ratio will be lower, no matter what the circumstance if that is the price you use.
  • The beauty of this simple approach is that all numbers are flexible. An investor can either wait for the target price, or pick a price anywhere in between that matches their risk and confidence level to have that good feeling of knowing you bought a stock at a price you are comfortable with.
  • This approach is only suggested for mega cap, blue chip, dividend paying stocks with a very long history behind them. I do not suggest this to be used for higher valuation riskier growth stocks, because there are no historical patterns with most of riskier stocks. They are simply too volatile.

The selling of stock, or taking profits is perhaps more difficult than buying a stock. The figures at the end give target sell prices and suggested percentages to be sold. Here are the basics:

  • When a stock rises by 50%, consider selling 25% of your stake in that position.
  • When a stock rises by 100%, consider selling 50% of your stake in that position.
  • The beauty of this approach is that you have a simple plan to rebalance, as well as a guideline to use if you are prone to taking profits.
  • The ultimate is when a stock as doubled and you sell 50% of your position, keep your original investment intact, book the profits, and let the "house money" run.
  • When selling shares within a position, an investor can either add cash to reserves for an eventual pullback, or re-deploy the cash right back into other stocks that offer similar value for shareholders. In this case, it is all about the income from dividends.

There Are Potential Pitfalls When Employing This Strategy

Nothing is EVER risk free, and if anyone ever suggests that, run in the opposite direction as fast as possible. All they want to do is separate you from your money.

Here are some things to be aware of when using this approach:

  • The income derived from the portfolio will drop. Sell some shares and you will have less shares producing income for you. It would be prudent to put the money back to work as soon as possible to mitigate some of this occurrence.
  • By taking profits at an upswing in share price, it might mean that the stock is ready to break out even further, and you could leave money on the table. To me, this is trying to time the market. Nobody every went broke taking a profit. EVER. There are thousands of other investments that will be available for you to buy to enhance and enlarge your portfolio.
  • The share price might never reach any of the target prices, and the portfolio will remain static. I believe this might be the best of all scenarios. Especially if dividends are reinvested into each stock and the stocks purchase continue increasing its dividends each and every year. It is almost like putting your portfolio on auto-pilot, and there are no "musts" when it comes to a portfolio that is doing precisely what it is supposed to do; create more and more income every year. You never have to buy and you never have to sell if that is what you choose.

Keep in mind that we are talking about investing for the long term to create a more secure financial future. The more time you have, the more wealth you will create.

The Bottom Line

I have found that while this approach is not perfect, the average person can understand it, employ it, and probably do just as well, if not better than many of the hot shot stock pickers in the world.

I look forward to a very vibrant comment thread!

Disclosure: I am long AAPL, CVX, F, GE, JNJ, KO, MCD, MO, MSFT, T, XOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.