It has been a great year for stocks, which means time to clean out the refrigerator to offset our capital gains. We probably all have some moldy losses hiding in the corners, but it sure is hard to acknowledge we goofed and finally move them out. At least the timing is right for our new year’s resolutions.
1. Stick to a firm exit strategy. Two are there because I switched exit strategy after they had done well and just kept cutting them more slack as they went down. I had used a strange system of selling a holding if it had gone up 20%. It worked. Later when I went to selling after a 5% drop found few shares really did a run of greater than 25%, though in-between systems some worked their way to the back of the frig having not hit 20% and falling past 5%.
2. Do not evaluate high dividend shares differently than other shares. My thinking was these were conservative investments so I expected some downs as well as ups figuring it would all even out with the dividend. One with a 14% dividend (it was a royalty biotechnology patent company similar to an MLP) had a 17.9% decrease in value.
It is also necessary to check that the dividends are being issued. Even though you may see a wonderful dividend listed on Yahoo or MSN, looking at the chart after you have set it to show dividend events may shock you when you learn they are “special dividends” and have not been dispersed for a few years.
Despite this one bad boy, most of my MLPs did absolutely great. One, EVEP, EV Energy Partners give me a sweet 31.16% gain on top of a 9.95% dividend. I did sell to lock in my gain, but will be buying back in at the next price dip.
3. Do not chase performance. Twice I bought into the same stock I saw listed as a top performer for the day. I just loved its fundamentals (38.6% increase in sales, 606.1% increase in income), but of course was two late since it was oversold at that point.
4. Do not forget who raises stock prices. The above stock, SVA, Sinovac, the Chinese manufacturer of their HINI flu virus would get an occasional boast from the individual investor like us SA readers, then fall back down. The real power of the market, institutional investors, would not go near it. Cramer pointed out on a show that institutional investors are after next year’s performance. Will there be another flu menace next year? - not something they are likely to bet on. SVA in fact worked out an agreement with another biopharmaceutical to round their product line so it would be less seasonal.
(By the way, one of the best search options of MSN stock screener is “Institutional ownership up last month” - this is a good way to get in front of the performance peak.)
5. Lock in profits. Warren Buffet lied to you. Unless you sell when prices peak and buy back in when they pull back, you may not make a dime. My uncle had Ford stock - F, and he always said “Ford has been good to me - I bought it at $16 and it went above $24.” Unfortunately he did not sell it until it was at $7.00. If you look at the dips and peaks on the 5 or 10 year chart, you’ll see he could have made money on it many times if he had sold and bought, sold and bought. Instead he lost since he held it “forever“. I had three small investments that I held on to thinking they would still go up further and instead went the other direction.
6. Use trailing stops. A buy that would have been a great home run turned in to a disaster because I did not use a trailing stop, SIGA. It went down 13% on the day when I bought - the next day it went down another 28%.-it then went back up about 16%. I would have done really well if I used a trailing stop rather than just guessed that it was done going down.
7. Don’t buy something you would not want to own. I broke my own rule on SIGA. I avoid companies that do not have positive earnings per share. SIGA had great increases in sales and income so I broke my own rule. There are so many companies out there with actual earnings and great fundamentals that you can be conservative and still do well. I don’t think it would have taken such a deep dip if it had positive earnings.
8. Remember to have fun. If you not having fun, you’re doing something wrong. It was a great year for me, and with some of the profit I made my best investment of the year. I bought a leather Lazy Boy couch for my gal pal, the Kiddo. It made her so happy she cried. Here’s looking at you Kiddo. J
Disclosure: long sva evep siga no position f