Question about dividend investing, when to sell and take losses?

[GIlman]

@MJ DeMarco one question i have from you book is how do you protect your money system from loss.

You talk about selling your dividend,reit and other stocks in a runup.

But what about if the stock price declines. For example SO is around 48 right now. Say you bought today and it slowly declined. is there a trigger or point you sell and accept losses.

Do you stop loss limits? How do you determine this? How do you prevent getting whipsawed?

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[MJ DeMarco]

I moved your post out of the I've Read Unscripted thread into it's own thread... Ill post a little later today.

 

[MTF]

Somebody asked a very similar question recently: Capital Loss and Income Pot

 

[MJ DeMarco]

You talk about selling your dividend,reit and other stocks in a runup.

But what about if the stock price declines. For example SO is around 48 right now. Say you bought today and it slowly declined. is there a trigger or point you sell and accept losses.

Do you stop loss limits?

I don't use stop loss limits.

As for selling an asset that I consider a part of the paycheck pot, I don't have any hard-and-fast rules, but I do have some criteria I examine.

1) When a paycheck pot asset declines, I consider it a buying opportunity, not a selling opportunity.

2) When it does decline, what is the core impetus of the decline? A knee jerk reaction to some type of news? Does the news effect the LONG-TERM viability of its operations? For instance, I've been out of SO (Southern Company) for a bit but it has recently declined, making it more attractive. The news that caused it's decline (IMO) is going to be costly... however, does it effect its long term viability? Will people in the south suddenly stop buying power? The answer is no. SO is now on my radar (again).

3) When a dividend reaches a "WTF?" level, then I consider selling because it speaks to a larger problem. If a company suddenly has a 19% dividend, it usually means the dividend is likely to be reduced (causing more price declines).

4) I look at technical break downs. This depends on how the chart looks, however an asset with new lows and a breakdown of long term supports (50/200 DMA) will cause an investigation.

5) Basically I look for a core change in the fundamentals and/or the long-term viability of the industry. This could be anything from margin deterioration, free cash flow, or a sudden rise in debt that has no explanation.

Overall I try not to get too wrapped up on near/short term price moves.

For example, I own HEP, Holly Energy. This stock is in a bad downturn due to some weak numbers and debt. However I've been buying more (not selling) because I feel the long-term prospects haven't changed. Oil, its industry, has also been in the crapper.

At the moment I have unrealized losses. And sure, at some point they can become realized -- but I will only do that when I truly feel there's something that threatens the company as a whole. Or, I will sell when the loss can offset some gains made earlier in the year, saving me on taxes.

I also will reiterate this: The example I used in Unscripted used ONLY dividend stocks, but I use a combination of everything from managed funds to CEFs. Here was an example I recently described:

Money System Management: Real Example, Closed-End Fund

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.