Investing: You and Your Stock

You now own shares in the company, which you have researched and investigated in as much as possible.

You’ve asked all the right questions: What is the company’s projected growth for the next few years? What are the liabilities of the company? How secure is the management team? How needed and vital are the products or services offered? Would I want to own this company in five years, assuming there are no huge surprises on the horizon?

All of these are the kinds of questions that need answers, to understand your relationship to a particular company.

Similar to a marriage, you are going into a relationship that will hopefully be beneficial to you.

But unlike a marriage, the relationship doesn’t have to last forever. (I guess people feel the same way about their marriages in our current culture!) In “the olden days,” 20 or 30 years ago, when you bought stock in a company, the expectation was that you would hold onto it for a long, long time, sometimes decades.

There are people who bought General Electric in the ’80s who still own it. I have a friend who was bequeathed Procter & Gamble stock — lots of it — from her mother. She still holds on to it, because there is an emotional and financial attachment.

One of the first things I’d like for you to repeat is this: “I do not have to stay married to any of my stocks.” Say it again: “I do not have to stay married to any of my stocks.” Why not? What has changed in the investing world to allow you to sell a stock sooner rather than holding onto it for decades?

First of all, we live in a much more rapidly changing economy and environment. Decades ago, change happened much slower, or at least our awareness of that change happened in a slower manner. Today, with media coverage from all over the world, what happens across the globe can affect you and your stocks in literally minutes.

So what was good for your stock and its product today may not be good for it in a month. This fast-paced world also means more work for you. You must have diligence and keep track of what’s happening in the world in which your stock lives and moves.

For example, let’s say you own a stock that deals in lumber. All of a sudden another product (say, steel) is discovered to be a better framer for homes. The market will go down for raw lumber, and your stock will plummet, and if you are not watching carefully, you might lose much of the value of your stock. But if you continuously check to see what is going on in relationship to that company and product, you can anticipate this possible downturn in the lumber market and get out before the damage is too great to your portfolio.

Another reason why it’s best not to stay married to a stock in your portfolio is that it may reach its full value sooner than expected, in which case you should take your profits and move the money into another up-and-coming stock instead. Greed is not good, despite what Gordon Gecko told us in the movie “Wall Street.” It can obscure your goal of making a nice, steady return on your investments because greed can convince you that a little bit more profit is what you need; hang in there and wait until it goes up another 5 or 10%.

Meanwhile, something happens that turns your stock south, and the anticipated profit turns into a loss. Better a 10 or 15% profit than an anticipated 20 to 25% profit that fails to materialize.

A good rule to live by in the investing world is not to sell one stock until you have identified another stock, then move the money. This means that you are constantly looking for the next big winner in your portfolio, scanning the news, watching business channels on TV, listening to friends’ recommendations, generally staying tuned into the world around you.

Or, as I like to do, what negatives in the world around me can I turn into positives in my portfolio? If gasoline is rapidly approaching $4 per gallon, how can I make money in this sector to compensate for the extra expense of filling up my car? If the oil companies are making a killing because of gas pump prices, as they are accused of doing, why not own one or two of them and make some money on the appreciation of the stock price?

Next time, learn about a strategy to lock in profit in your stock so that you can sleep at night. It’s an easy yet efficient selling plan. So buy your stock(s) and then come back next time to see how you can fairly and effortlessly sell when the time is right.