Like most of you reading this article I too faced the same issue when it comes to selling stock.
Selling is always a tough decision as it is. If you have loss, you are tempted to wait for recovery. If you have profit, you are afraid that you are selling too soon.
Think of a high dividend paying stock which offers 7% dividend like an oil company for example BP. It hit a high of 43.60 in April 2015, a low of 29.38 5 months later in Sep 2015. You lost all the dividend and more. Dividend should be the reason to buy stock ONLY if you look at the past history and the future stability and believe that stock price will be flat and you are better of than cash in the bank. Even then it is a riskly move. Just examine not a stock by high yield bond JNK for example. Price may vary 10%. Dividend is 6%. Do you have a good reason to buy?
Let us talk of tax implication. Assume you had stock in Apple you bought early this year for close to 110. You saw it hit 130 and almost keep going back to 130 and thought that you will be hit with tax if you sell and held on. Now you are probably worse off selling at 116.
So, how do you decide when to sell? If you are a long term investor and believe that over time stocks are better and not sure what to do, you would buy an index such as S & P 500 and hold for 10 years or so and accept the historical annual return of 7.6% and dividend of about 2%. 7.6% per yr is same as about 0.55% per month compounded. 2% per yr is same as about 0.5% per quarter. When your Apple stock went up to 133 in Feb barely 2 months after you bought it, you had a profit potential of 20% in 2 months. If you did not take it and pay taxes you lost really badly.
Remember the old saying.
Bulls win, Bears win. The greedy pigs get slaughtered.
Don't let dividend or taxes control your selling decision. If a stock far out performed S & P 500 in a short amount of time, you owe it to yourself to remember why you bought that stock and think if you think the stock will still out perform S & P 500 at the current price.
Just food for thought...
Selling is always a tough decision as it is. If you have loss, you are tempted to wait for recovery. If you have profit, you are afraid that you are selling too soon.
Think of a high dividend paying stock which offers 7% dividend like an oil company for example BP. It hit a high of 43.60 in April 2015, a low of 29.38 5 months later in Sep 2015. You lost all the dividend and more. Dividend should be the reason to buy stock ONLY if you look at the past history and the future stability and believe that stock price will be flat and you are better of than cash in the bank. Even then it is a riskly move. Just examine not a stock by high yield bond JNK for example. Price may vary 10%. Dividend is 6%. Do you have a good reason to buy?
Let us talk of tax implication. Assume you had stock in Apple you bought early this year for close to 110. You saw it hit 130 and almost keep going back to 130 and thought that you will be hit with tax if you sell and held on. Now you are probably worse off selling at 116.
So, how do you decide when to sell? If you are a long term investor and believe that over time stocks are better and not sure what to do, you would buy an index such as S & P 500 and hold for 10 years or so and accept the historical annual return of 7.6% and dividend of about 2%. 7.6% per yr is same as about 0.55% per month compounded. 2% per yr is same as about 0.5% per quarter. When your Apple stock went up to 133 in Feb barely 2 months after you bought it, you had a profit potential of 20% in 2 months. If you did not take it and pay taxes you lost really badly.
Remember the old saying.
Bulls win, Bears win. The greedy pigs get slaughtered.
Don't let dividend or taxes control your selling decision. If a stock far out performed S & P 500 in a short amount of time, you owe it to yourself to remember why you bought that stock and think if you think the stock will still out perform S & P 500 at the current price.
Just food for thought...
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