When To Sell: Why Breaking Up Is So Very Hard To Do

Includes: CL, GE, HRS, JNJ, KMB, KO, MDLZ, PG
by: David Crosetti


One of the most interesting things about the members of Seeking Alpha is the fact that there is such a divergence of people. You can find every type of investor here. You see the fundamentalists, the technical analysis guys, the dividend investor, the dividend growth investor, the blended investor and just about anything else you can imagine.

What makes this forum so great is that divergence of thought. Hopefully we can learn from every type of investor and that dialogue will help us to grow in our own path to investing success.

I have read a number of articles that discuss the notion of "when an investor should sell." The reality is that this is one of those issues that are best answered by "it depends."


I am a Dividend Growth investor. That means that I look for companies that have a history of paying dividends, that have increased those dividends annually, and that have the earnings potential to continue raising those dividends as time marches on.

That is a different strategy than what others do. I am not here to convince anyone that my strategy is any better than theirs. All I want to do is make it clear as to the type of investor I am, so that I can flesh out this article.


I started investing more than 30 years ago. At that time, I worked for the Coca-Cola Company (KO). As part of our 401k plan, we were able to purchase KO stock. One thing I noticed when I would review my 401k was a section labeled "reinvested dividends." The results were great and I started to investigate other dividend paying companies-Procter and Gamble (PG), Colgate Palmolive (CL), Kimberly Clark (KMB), Johnson and Johnson (JNJ), and many other consumer goods companies.

Why was I buying them? Mostly because I was in that industry and knew a lot of the people working for these companies and I was familiar with their brands and market penetration. So, it made sense to me.

All of these companies paid dividends, increased those dividends annually, and best of all, with reinvesting the dividends, I got more shares. The other thing that happened, as these companies went through a period of time where they would split their shares, I was able to accelerate the number of shares owned and as a result, my cost basis per share was getting smaller and smaller.

As we look to the current state of affairs with my own portfolio, the cost basis of many of my long term holdings is significantly less that the current market price. My Colgate Palmolive has a cost basis of $2.80 a share. My Kimberly Clark has a cost basis of $5.49 a share. My Coca-Cola shares have a cost basis of $5.32 a share. I don't worry about market changes with those costs per share.


Most of my holdings are ones that I've held for a very long time and have reinvested dividend. Normally, I am going to be selecting Dividend Champions, Challengers, and Contenders as part of my own portfolio. As a result of that philosophy of investing, I have to ask myself if that purchase is going to be a "core" or "non-core" holding. Cyclical stocks for me, purchased at a low point (value price) would not qualify as a core holding. My intention is to ride the stock to a gain and then perhaps sell it for a profit, so I can reinvest that money in my low cost basis shares, if that makes sense.

Examples of recent purchases are: General Electric (GE) was purchased for $15.74 a share and is now selling for $19.72 a share, which is a 25% gain since November of last year. Harris Corp (HRS) was purchased in January of 2012 at $37.64 a share and is now selling for $44.40 an 18% gain. Kraft Foods (KFT) was purchased in January last year (2011) at a price of $31.77 a share and is currently selling at $38.25 a share, a 20% gain.

Of those three stocks, Harris Corp is the only member of the Dividend Champions, Challengers, and Contenders list. All three have performed well and could be potential sales for many investors with a different strategy than mine.


I can't say it enough. Every investor has a strategy for their investing practices or should. Some are totally focused on one strategy while others have a blended approach. If it works for you, then regardless of your strategy, it's a good one. If it's not working for you, then maybe you need to look at what you're doing and how you are approaching the market and make an adjustment or two."

Knowing "why" you are buying a particular stock and "what" your expectations are in owning that stock is paramount. I employ an "entry point" selected from fundamental analysis. I always have an idea of what I think the stock is worth moving forward and where I think it can go. If and when those fundamentals remain in place, I can always adjust my "exit point" at a new number. So can you.

There is one thing that I am convinced of. This market is not "normal." I don't believe, personally, that the economy is really in all that great of shape. Perhaps there is money flowing into the market because it has no other place to go. I don't know. But, I do know this. Caution is never out of style.


If you have recent purchases that have had a good run, perhaps it would be wise to take some of your profits off the table. You can do one of four things (strategies).

First, you could sell enough of your position to recapture your original investment. In that way, you will be letting your profits ride and you would be able to take your original investment stake and put it someplace else.

Second, you could sell enough to capture your profits and leave your initial investment sitting with that stock. In that way, you are locking in your profits and reinvesting that profit someplace else, while still holding a position with each of these two strategies.

The third option is totally different from the first two. You could sell your entire position and just move on. But then, you no longer have that particular company still in play, in your portfolio.

Fourth, you could actually do nothing at all. Just see where things play out. One stock that keeps being mentioned in many articles is Apple (AAPL). Is it a sell or stay? The fundamentals on the stock would indicate a hold, maybe even a buy. You can just keep holding it or you could exercise one of the three strategies above. This one is a "dealer's choice."

Personally, I think this market is going to close the year higher than it is now. Time will tell. I may be right, I may be wrong. But, sometimes doing nothing is not a bad idea either.

Disclosure: I am long KO, CL, KMB, HRS, GE, KFT, JNJ.