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)