Holding vs. Buying or Selling

In analyzing stocks, one of the easiest ways to generate new ideas for our own personal portfolios is to sift through the portfolios of the legends of the stock market business. Warren Buffett reveals his stock moves within his company Berkshire Hathaway on a quarterly basis as per SEC (Securities and Exchange Commission) regulations. This provides a slightly lagging window into his stock market activity, though it can provide clues as to which companies he believes hold the best long-term prospects.

Of course, it is never enough to just see what Buffett or any other titan is buying or selling and take the matter at face value. There can be many reasons for buying or selling and the whole story is not always – if ever – available. The onus is on the individual to do their own research, in all cases.

Just because Buffett holds a stock does not indicate a buying signal for anyone else. Many of Buffett’s positions in companies are longstanding and he was able to get in at terrific prices. Now, many years later, he is able to sit back and collect rising dividend streams from these cash cows even if, in his own contemplations, he may view the companies as being too pricy for adding to his position. Coca-Cola (NYSE: KO) is an example of a company where Buffett was able to initiate a position long ago (in the 80s) and now simply holds for the dividends.

There is a marked difference between buying shares and holding shares. At times, it is the case that we have a position in a company and, while we are able to collect dividends by holding, we view the company as overpriced and as such do not add to the position. It seems contradictory to say, but even though at times we may view securities we own as overpriced, that is not necessarily a signal to sell. Holding is oftentimes the more prudent path. Action through inaction can yield results, particularly with solid dividend achievers.

Patience is often the greatest virtue for a dividend investor. Having the fortitude to hold through bad times, accumulate more shares, and then hold rather than selling even when markets appear to be overblown saves on taxes, commissions, and general unrest. I prefer to take a relaxed approach to investing whereby I let the markets ebb and flow while I take a long term view, preferring to just stick to solid brick and mortar companies that generate rising profits over time. Holding has rather than selling has proven fruitful for me. So long as the story hasn’t changed, an increased stock price is no reason to pull the trigger and sell.

Full Disclosure: Long Coca-Cola (KO)

Cost and Value 101

The words we use shape our outlook on the world. As such, I feel it is incredibly important to be careful in our word selection.  Given the amount of economic turbulence we have all experienced over the past few years, I feel it would be useful to revisit two words that often get used – mistakenly – interchangeably; cost and value.

Cost is easy to observe. It is one of the first things any of us pay attention to when considering a purchase. It is the sound bite that commercials on television bombard us with. The cost of a thing is quite simply its price tag.

Value, on the other hand, is a much trickier term. It is hard to pin down what exactly is the value of a thing. It isn’t announced or boldly placed on display. Value is the true worth of a thing. Value goes beyond the price tag and asks, “Is this thing really worth the advertised price?”

One of the most interesting observations I’ve seen is that any person would agree that it is better to buy a new jacket for $25 rather than $50, and in fact that same any person would jump at the opportunity to cash in on such a sale, but yet fails to take the same measures in their investing life. The financial herd who convinced themselves to buy at $50 manage to convince themselves to sell at $25 rather than to buy more of a given company’s stock even when the story or investment thesis is unchanged. The same person who sees more value in the $25 jacket somehow manages to fail to see the same value proposition when it comes to the investment marketplace.

The reason for the above is rather simple, I believe. While people are able to inherently understand that paying $25 is favourable to $50 for any given item, investing isn’t so black and white because it is also an emotional endeavour. The reason the masses fail to capitalize on opportunities like this while investing is because fear overtakes their inclination to snag a basement bargain price. For this reason, investing is as much – or likely far more – about taming your emotions than a matter of intellect.

Beyond the emotional aspect is the fact that to get past the cost to see the value of a thing requires actually digging down and studying. After careful deliberation, after all of the facts have been weighed and the fundamental and technical data has been analyzed, it is time to make a judgment and trust that judgment to be the right one. Given the volatility in the market, this requires fortitude through trying times. This can be a very good thing from a true investor’s perspective because the less others are able to identify the value of investments and act on them, the longer they sit on the table for the astute student of the game.

Dividends

Dividends, at their most basic, are simply the money that companies pay their shareholders. It is customary for a company which is able to generate excess earnings beyond what it needs to reinvest in itself for growth to pay out that excess to its loyal shareholders.

One of the great benefits of owning shares of companies that pay dividends is that the owner never needs to separate him/herself from the company, i.e., by selling shares to raise capital. Shares of dividend paying companies can theoretically be held forever – assuming the dividend is not cut – and the owner can continue to generate an income for as long as the stock is held.

Why are dividends relevant? Dividends from reliable companies represent one of the steadiest ways to work toward financial freedom. Building a strong portfolio of dividend paying stocks can also be incredibly painless and, if done well, exceedingly hands-off.

My personal goal is to acquire enough shares of dividend paying companies to achieve financial freedom by the time I turn 35. I am currently 24. This gives me around 11 years to chart my course and document the process.

First Post

Welcome to The Dividend Titan Blog. This blog is intended to be educational and informative. It will track my journey on the way to financial freedom. I invite you to contact me directly at Info@RyanLaming.com for information either about myself or this blog. I intend to update this blog regularly, so be sure to check back. Thanks.

The Dividend Titan