Tell me if this sounds familiar …
When you look back at 2021, you wish you had sold your shares.
It’s not unusual to look back with a tinge of regret at not selling while you had the chance to do so at higher stock prices.
But here we are.
Indeed, with the dark clouds gathering around the economy, you may be wondering whether you are better off letting go of some or all of your stock holdings.
The questions swirling in your mind vary …
The economy looks bad, I will invest when things clear up.
I will sell my stocks now and buy back later.
DBS Group (SGX: D05) is up 95% from its March 2020 low, I should sell before I lose my profits.
When my stock rebounds, I will definitely sell.
There may be many reasons why you want to sell …
… but behind all these questions is a deep, unsaid feeling when it comes to selling your stocks.
WHAT IF you sell, and the stock goes up big?
WHAT IF you don’t sell, and the stock goes down?
The thought of making the wrong call strikes fear in many hearts.
The road to disappointment
Granted, when we invest our money, we hope to generate more than what we put in.
Each of us has our own financial targets to meet, and generating positive returns brings us closer to those goals.
Based on that understanding, it would seem logical to measure your success or failure by whether or not you manage to generate a positive return from investing.
Yet, if you measure success or failure by what happens to your stock AFTER you sell …
… you are guaranteed to be disappointed somewhere down the road.
That’s because you’re trying to guess where the stock price will go next.
As investors, the best we can hope for is to tilt the odds in our favour for a positive outcome.
That means we won’t be getting everything right — not even famed investor Warren Buffett is right all the time.
Hence, if you seek a favourable, perfect stock price outcome after you sell, you are bound to be disappointed.
Hitting your financial targets
Scoring positive stock gains is important.
Yet, when it comes to selling, returns are NOT the only yardstick on how you can measure success.
For instance, if you sell to fulfil your financial goal, I would count it as a SUCCESS.
You may be saving up and investing to buy a house.
Or to get married and start a family.
Or maybe you have reached a point where your pot of money is enough to last you through your retirement.
Simply said, we are all from different walks of life and each of us has our own objectives.
The key here is this …
… investing is to help you get to WHERE you want to go, financially.
So, if you sell because you met your financial goal — then, in my mind, investing has served its intended purpose.
Ergo, it qualifies as a good reason to sell, regardless of what happens next to your sold stocks.
That’s why, at The Smart Dividend Portfolio, we strongly believe that there is no one-size-fits-all approach to stock portfolios.
Instead, there is a one-size-fits-YOU.
Invest based on your needs. You succeed in investing when you achieve your goals, not someone else’s goal.
On an even keel
If you find yourself having sleepless nights over your stocks, it could be a sign that you have overcommitted your cash into stocks.
Under these circumstances, it may be wise to pare back.
In my mind, your mental wellbeing is more important than stock returns.
Think of it this way.
If you are struggling to hold stocks because you may have committed too much money, then you may not be in the right emotional state to make the best investment decisions in the future.
And if you are not able to make rational decisions, you may do more harm than good.
At The Smart Dividend Portfolio, we are advocates of doing simple things such as keeping an emergency fund or using cash that you don’t need for the next five years as precautions before you invest.
Keeping a level head is your best strategy against any stock market.
Get Smart: Your right mix of stocks
If you really need to pare back and sell some of your stocks, here’s what you can consider:
First, you may find that some stocks no longer fit what you want to achieve.
Behind each stock is a different business.
Some businesses, such as DBS Group, are well-established, with diverse operations across Asia and different industries — and thus, are less likely to be disrupted.
We call such stocks “income stocks”.
This group of dividend-paying stocks are not the fastest growers but we rely on them, year in and year out, to keep paying dividends.
Others, such as Keppel DC REIT (SGX: AJBU), have historically grown their dividend faster than DBS Group, but are less established compared to Singapore’s largest bank.
This group of stocks are “growth stocks”.
The function of this cohort is to help provide a layer of growth to your portfolio.
Between income and growth, there is a mix that is right for you.
Second, you should always choose businesses that you feel comfortable holding for the long haul.
Over time, you may lose confidence in businesses that have struggled during the pandemic and may never recover post-pandemic.
There is no shame in letting go of permanently-damaged businesses, especially when every company around the world has just experienced the first-ever pandemic of our lifetime.
Not all companies survived or thrived in the past two years.
In fact, at The Smart Dividend Portfolio, we sold one stock earlier this year and have put three other stocks in a penalty box until they show that they are worthy of new money again.
In short, let your financial goals and the stocks you are willing to hold be your guide.
The above is a peek behind the scenes of what we do at our inaugural Singapore dividend stock service.
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Disclosure: Chin Hui Leong owns shares of DBS Group and Keppel DC REIT.