Don't Let Stinkin' Thinkin' Derail Your Portfolio

by: David Crosetti

This has been an interesting year, financially, for a number of reasons. In the first half of the year, markets seemed to enter a rally mode and for many investors who made initial purchases of dividend growth stocks in January, things were looking pretty good.

In the second half of the year, the market started to trade sideways with large up days and then followed with large down days. The mantra soon became "buy on dips." Again, for investors who were in a position to add to their holdings, the strategy worked for a number of stock purchases. Some that come to mind are Procter and Gamble, (NYSE:PG), Kimberly Clark (NYSE:KMB), Raytheon (NYSE:RTN), Lockheed Martin (NYSE:LMT), AT&T (NYSE:T), Microsoft (NASDAQ:MSFT), Intel (NASDAQ:INTC), Waste Management (NYSE:WM), Aflac (NYSE:AFL) and Dupont (NYSE:DD). I am sure that there are many other companies that you can point out that presented great buying opportunities during the year, but these are companies that I either initiated a new position in or added to an existing position. As you can tell, I have been a very busy boy over the last 6 months.

Well, the question here is "what do we do now?"

At this time of year, over the holidays, I like to review my portfolio holdings. What I see is that I have a number of positions with large gains, a number of positions with little or no gain, and a total portfolio that is no longer "in balance" with holding being equally represented.

Well, the choices are obvious here. I can do nothing - that is leave everything the way it is, currently. Or I can make some strategic moves in order to create a pool of money that I might be able use, in order to enhance my income stream, moving forward.

For many of us in the DG camp, thinking about selling companies that we own tends to make us feel about the same way we feel when our daughter and her boy friend come to you and say that they want to get married. You think, "this guy just isn't good enough for my daughter." For many of us, thinking about taking money out of an existing position (KO for me) and buying something else leads us to think that company "XYZ" just plain isn't good enough for my portfolio.

Well, where I work we have a saying that is used when someone stops thinking critically. We call it "stinkin thinkin." In my business it's when someone complains that there are "no more customers out there to sell." Or, "People don't have the money to invest in our services."

All I can say is that as an investor, we can't allow ourselves to stop thinking critically about our investments. Some of the things we have done this year have worked out great - others not so great. Some of us have allowed ourselves to practice "stinkin thinkin" by becoming emotionally attached to a particular stock.

Some of us have seen an opportunity present itself, but we did not have the cash to act on that opportunity. Some of us have allowed ourselves to be paralyzed with fear. The list can go on, but I think you get the point.We need to address what the next best thing for us to do with our investments is. It's a cliche, but we need to be willing to sometimes think a little bit "outside the box."

Here is a list of stocks that are companies found in many DG portfolios. I have boldly highlighted those companies that are "CCC" stocks. The criteria that interests me the most is the column titled "1 Year Total Return."

Click to enlarge

There are some real "hum-dingers" on this list. Many of these companies have a total return in excess of 15% over the last 12 months. While your own total return for any of these companies that you might own may be different from the total return expressed here, you need to look at how your holdings have done over the last 12 months, growth and income factored in. There are a few companies on this list that I don't own, that I will be doing some due diligence on, moving into 2012.

To my way of thinking, as you manage your portfolio balance, it would seem prudent to reduce your holdings in those companies that have done well. It would also be my practice to look at the possibility of reducing my holdings of a particular company that has done well, and take that gain to invest in other companies that look compelling as we move forward to 2012. I want to pay particular attention to my portfolio weighting by sector and by company within that sector and get things back in balance. Adding here, subtracting there.

My last three articles have been about managing your portfolio. An emphasis has been put on the concept of taking profits while refinancing and to consider taking an initial investment in a particular company and turn that position into one that is funded by the profits that you have made on that position.

So, if you are a DG investor, I would imagine you might be looking at balancing your holdings. If you are a Growth investor, you may be thinking about taking some profit. And if you are a Value Investor you may be thinking about shifting your holdings around a bit to find some new value opportunities to invest in. Or if you're like me, you may be doing all three.

What ever you choose to do, bear in mind that it's your decision alone to make. Follow your own strategy for investing and remain consistent with that philosophy. I will be spending the holidays celebrating a good year financially and at the same time looking to where I am taking my investments in 2012.

Disclosure: I am long CVX, RAI, MCD, INTC, VZ, SO, KNM, CL, MO, LMT, XOM, KO, WMT.