Friday, July 19, 2013

Steady the Ship or Portfolio while the Investing Waters are Rising


I must confess I am like most people when I say, “I like to see the market move higher.” It is human nature to want to see green instead of red and think we made great purchases. The truth is it is better to have market prices lower while you are in the accumulation phase to accumulate more shares. The core of my portfolio KO, MCD, GE and other blue chips are trading on the high side of valuations most hitting new 52 week highs and have been raising dividends at a historic pace. I do think this is good but not the ideal situation. I will explain: I don’t plan on selling these companies anytime soon. The reason being I have bought them for income and future dividend growth. The future is bright and I like the relatively low risk they have compared to the alternatives in the market. The problem I have is I am sitting on a lot of cash and have seen stocks on my watch list increase 10 to 20 percent and seem to be getting further and further from my purchase price target. Now for a trader who just wants capital gains this market is good! I do have a few small trades but my focus is on the long term.

This is where the discipline has to come in. If you are managing money for yourself it is a lot easier to convince yourself to wait and stick with the goals you made. I am always reminded that most professionals have to show progress yearly or even quarterly so they don't have the ability to be as patient. This is a big advantage to the individual investor who studies the markets and value investing principles. We don't have to swing on every pitch or investment. Like Warren Buffett has mentioned, we can wait for the right investment takes our time then make our move or something to that effect.

So it’s July 19, 2013 and I will just lean back continue reading books and wait for my time to invest. I am actively paying attention to the market. Every day I take in all the craziness, scrambling to the next big thing or the next tip to make a quick dollar. I then pause and look at what the market is not focusing on. The market can turn at any moment and I will be ready to put some of my cash to work in names I am watching today. I am not really in the business of predicting when I just want to be there to take advantage.

One major factor when investing in dividend paying stocks is every quarter the company pays a dividend you need at least that much drop in the share price to make sense in waiting to purchase the company. An example today is MCD if the stock is trading at $100 and it takes 6 months to trade to $98 you might be ok just buying today because you will get $1.64 in dividends and they will announce a dividend increase in the meantime. This is a decision based on your research what you feel a pullback would mean for each company on your watch list.

 What do you feel about market? I would be interested in all views

 Thanks

 DSF

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