We have already arrived at Day #6 of our 6 Days to Dividend Growth Investing Series. For the final day, I would like to suggest a few tips for when you will have more than a few stocks to manage. These are among the best tricks I’ve learned over my 10 years + in the investing world.
#1 Don’t fall for high yield stocks – Go for strong dividend growth
High dividend yield stocks are usually paying great distributions for a reason; because the market fears they will stop. At best, the company will continue paying its dividend but you won’t see any growth from neither the payout nor the stock value. Go for companies that will supply you with both types of growth instead.
Don’t limit your thinking to today’s dividend yield and think about the future as well. I’ve made several plays so far with low dividend yield stocks that have paid lots more than any 7-8% dividend yield stocks (APPL, DIS, GS.TO for example).
If you are not convinced, you can always check my case against high dividend yield stocks.
#2 Don’t fall in love with a stock – Fall in love with your investing strategy
There are few companies that you will hold during your investing life that are just flawless. You will love their products, love their growth and love their dividend. However, at one point, it’s important to write down the reasons why you bought them and make sure they keep in step with them.
Falling in love with a stock will blind you from poor results; you may excuse missed earnings projections and forget about a bad year while the market is up. These events should actually become a good reason to go back to the company’s fundamentals and focus on the real reasons why you bought it.
#3 Don’t sell because you made profit – Sell because you have a reason to
I’m sure you have heard about investors who have a “special rule” for selling. If the stock makes +15, +20 or +25%, they sell. If you talk with these investors, they will tell you they most likely make up their rules very often and sell the stock, rinse & repeat. If you keep talking with them, you will also realize they have left tons of money on the table.
There are no esoteric rules in the investing universe that will bring a stock down after going up by X%. Therefore, you are simply hurting your portfolio if you sell a winner while it continues to go up. I never look at how much a stock makes in my portfolio to determine if I should sell it or not.
Sometimes, I sell stocks and they are up by 40%, sometimes I sell them when they show a loss and sometimes, I keep them even if they are +100%. The secret is to have solid investing rules you can rely on and use them to sell your stocks.
#4 Don’t think you can beat the house – Invest wisely
I’ve seen many investors throughout years think they could (read should!) make up for their past losses with their next play. Investing is not a casino where you can play until you win. There are no “win or lose” scenarios and this is not a game. Investing is a process where you can put the money to work for you. A casino doesn’t work that way. This is why you play at a casino and you invest on the stock market. Never gamble your money, you will lose it.
During your life as an investor, you will see that, sometimes, a specific sector seems unbeatable. The economic environment sets the base for high growth for a small group of companies. It doesn’t mean you should buy all of them. In the early 2000s, Canadian banks and oil sand companies were in two highly promising sectors. We saw the same phenomenon with techno stocks right before Y2K. Investing in too many stocks within the same sector can result in fabulous returns if you are right but will eventually finish with brutal drops once the party is over.
This has happened in every successful sector at one point or another.
#6 Learn to let go
For the same reason you should learn to keep a winner, you should also learn to sell a loser. While I’m very proud of my investing returns so far, it doesn’t mean I never lost money on a trade. In fact, I’ve suffered from several stocks losing 50% (RIM, VNP, PDN just to name a few). But I had to let them go and concentrate on the winning plays.
A bad investment is a bad investment. Then again, there are no esoteric rules guaranteeing that a losing stock will come back from the dead and in order to sell it once it got its value back. This is not going to happen in most cases. If a stock keeps going down, there must be several reasons. Once you find them, you can determine if it is worth keeping it or not. But the historical stock price is not a valid reason.
#7 Never overestimate your results
I think this advice is probably the most important right now. If you are a young investor who started his portfolio over the past couple of years, you will definitely think it’s easy to invest. I started my investing journey in 2003 and made the same mistake. During my first three years of trading, all I was doing was making more money trade after trade. What I didn’t know is that a monkey would have done the same thing!
My mistake was to start thinking I couldn’t be wrong. This is when I deviated from my investing process and eventually experienced my first loss on the market.
I hope this series helped you improve your investing skills or to start out on the right foot. If you have any questions, please comment below!
Day #1 What is your purpose to invest
Day #2 Why dividend growth investing
Day #3 What is the Best Dividend Growth Stock?
Day #4 How to Proceed with Your First Trades
Day #5 Tools of the Trades – Dividend Investing Resources
Day#6 Portfolio Management Tips
Disclaimer; I hold shares of AAPL, DIS and GS.TO