Trim and trail stock lingo11/24/2023 These companies obviously possess qualities that are attractive to other investors, or the share price would not have increased. Opportunity Risk: The companies that have appreciated quickly have often done so for a reason. I actually have a life, a family, and a job. Occasionally, I am just not paying attention. Often another opportunity has come along, and the cash in the right account is no longer available when it is finally time. Timing the market twice: Though I often exit at a strategic point, getting back in at the right time has proved difficult for a variety of reasons. Investors do not regret selling as a bear market begins. Also, this is my experience in a bull market. Over time, they will continue to appreciate as earnings steadily continue. In general, the companies I seek have long histories and quality metrics. Some caveats here I do not usually invest in volatile smaller cap stocks where the company is in trouble. In most cases, just hanging on would have been more advantageous in the longer term. History: I have regretted very few purchases, but I have regretted many sells. It is likely to return to that line again and be a good purchase opportunity again at that time. For example, ROST was purchased at approximately fair valuation according to FAST Graphs. Return: Selling a position and buying back at a lower price boosts total returns, including increased yield and lowering adjusted cost base. Risking that gain in share price, to preserve a very small dividend stream hardly seems worth it. The gain, over only two months, in ROST, represents 15 years of dividends. Trading ROST for Wal-Mart ( WMT ), increases yield by 127%.ĭividends: Though creating a reliable, growing, dividend stream is the goal here, sometimes sudden growth creates a situation in which capturing the capital gain is more advantageous than waiting for the dividends. For example: CNI could be traded for CSX, inline with earnings valuation with a yield 66% higher. It is possible to get better yields in other names, often within the same sector. Yield: The yield in these stocks has fallen proportionate to the increase in share price. Trimming reduces the risk allocated to that single holding and sector. Position size: Stocks that have appreciated significantly may have become a larger percentage of the portfolio than you are comfortable to have in that one stock or sector. It seems wise to divest at least part of the holding. These overvalued stocks are unlikely to continue to be overvalued over the long term, though may remain significantly overvalued and become even more overvalued in the short term. In each of the companies mentioned below the share price has dramatically diverged from its more normal path near the earnings line. As the share price moves above and away from the adjusted earnings growth, shown as the orange line on FAST Graphs, there is increased risk that the price will fail to revert to the average. Risk: Share price over the long term follows the earnings of the company. Some say "Let your winners run." Some argue for rebalancing. There are many arguments both for and against trimming winners. The pipelines have done very well this year with IPL outperforming Enbridge ( ENB) and TransCanada ( TRP).įinally, Canadian National Railway ( CNI) or ( TSX:CNR) It has since taken off and the quick 20% and subsequent pullback from $77 has caused me to wonder if now is the time to head for the exit. ( ROST), bought July 17th.Īt that time, ROST had dipped to the earnings line on the FAST Graph above. The first is a newer purchase, Ross Stores Inc. The question I am currently wrestling with is whether I should be trimming those positions or just continuing to hold on for the ride. I have a few stocks that have gained far above expectations and well above the earnings adjusted line on FAST Graphs.
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