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Why I Don’t Sell Shares

I’ve just been playing around with the spreadsheet that I use to track my equity/fund portfolio. As usual I’ve been tinkering with the sheet, increasing the automation and improving the metrics and formatting as I often do when I’m bored!

While taking a closer look at some of my positions and more specifically the trades I’ve done over the last few years, I realised that I have only sold two positions in the last 4 and a half years. I often talk about how I invest for the long term but I’ve never really made a concious effort to look back to see if my actions are true to my word.

Not For Sale

Since [proper] records began Under The Money Tree, here are my longest and shortest holdings:

Longest Holding Period: 8 years and counting (City of London Investment Trust – CTY.L)

Shortest Holding Period: 20 months (Chesnara CSN.L)

Seeing that my shortest holding was 20 months pleases me. This tells me that I am indeed doing as I preach and focussing on long term investments as opposed to short term capital gains.

Why I Don’t Sell Often

First and foremost the fact that I’m primarily an income investor means that watching the dividends roll in each month is exciting. I look forward to receiving emails from my on-line broker notifying me that a new contract note is available to view. This invariably means that a dividend payment has been credited to my account. The best part is that these payments increase in size over time thanks to me compounding re-invested dividends as well as continuously adding and investing new capital to my accounts.

When choosing my investments, one of my main criteria is to select securities that help me protect my capital. Investing in large, stable, defensive companies and well diversified funds allows me to reduce volatility in my portfolio and avoid big loss situations that might force me to close out positions.

It’s a well known fact that over trading leads to increased payment of fees. I’m always trying to squeeze the fees I pay down in an effort to maximise my portfolio returns. In order to do this I tend to only invest in holdings I know I’m going to keep for several years.

Don’t Look Back in Anger

Both of the two ‘recent’ sales I mentioned at the start of this post (Vodafone & Chesnara in case you’re wondering) have turned out to be bad decisions based on the subsequent share price moves and dividend history.

Vodafone was sold in October 2013 on a whim for about £2.20 per share. While the price tailed off since the sale, it has recently bounced back to £2.09. Since selling there has also been £0.16 worth of dividends paid out.

Chesnara was sold back in January of this year (2014) for £3.44, a price roughly the same as it trades at today. The motivation behind the sale was to bag a handsome 108% profit. Since selling there has also been dividends paid out totalling£0.19 that I have missed out on.

So both holdings are trading roughly where I sold them at (along with the market in general) and are currently yielding just over 5%. On the face of those simple facts I wish I hadn’t sold them.

One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute.

William Feather

I definitely consider myself to be an investor rather than a speculator.

I’d like to think that I am investing in small pieces of stable, profitable companies with a view to sharing in the future profits in the form of dividend income as opposed to speculating on future price gains. Unless the businesses that I invest in change dramatically then I should never really have a reason to sell.

 

How about you? What’s your typical holding period?

{ 14 comments… add one }
  • JON September 5, 2014, 11:13 am

    @UTMT, I practice Stephen Blands concept of “Strategic Ignorance” and Buffets 4th law of motion.Once you’ve purchased a basket of diversified equally weighted dividend blue chip’s – you never sell or trade unless forced by corporate activity, just switch off, because no one knows how a particular share, sector, industry or the UK/Global economy will perform. Anyone who says they do is deluded. The income from 30+ diversified blue chip shares will be fairly stable. Some will cut dividends and some will increase dividends but the general long term trend will always be upwards to keep pace with inflation. Investing is a strange game, its the only area in life where less activity generates much better results.

    • Under The Money Tree September 5, 2014, 11:29 am

      Jon,
      I couldn’t agree more. However I’m unable to switch off completely. I still like to monitor my investments and make sure management aren’t doing idiotic things or that their business model hasn’t become obsolete or affected n any material way.

  • dawn September 5, 2014, 3:15 pm

    hi , jon I think ill adere to your statement. as well as trackers ive recently put together a HYP . ive 15 div paying blue chips at £2,000 in each. but Neil Woodfords been unnerving me recently with his dislike for RDSB and HSBC. and its making me rethink my choices as he knows more than me!. my idea was ,as Jon says, to buy and hold and don’t sell, some will cut divs others will increase their div so it will even out.

  • Monevator September 5, 2014, 5:05 pm

    I guess what you should really do with Chesnara and Vodafone is compare it to the return from the rest of your portfolio (ideally absent whatever you put the money from them into, although that’s a lot of work!)

    That way you can see if you added value by selling. Unless you put the proceeds into a tracker, that isn’t strictly the comparison you should make.

    Of course we’re very deep into the weeds here. 🙂 The average person has no idea what they’ve bought, sold, why, or what it did versus the market at all!

    Hard to argue with minimising trading, though I’ve been experimenting with much more (tax sheltered) activity for the past couple of years. My personal jury is still out!

    • Under The Money Tree September 6, 2014, 11:59 am

      Monevator,
      Seeing ‘what you would have won’ is always a terrible idea in my opinion and not much good can come of it. I think the real takeaway I have from those two sales is that I sold purely for profit rather than a change in the businesses per se. I let myself change my strategy purely for a few $. While not a bad thing (i did make money from them) it does tell me i’m susceptible to emotional strategy shifts!

  • Steve September 6, 2014, 11:16 am

    I’m in a similar situation with holding shares for a long time, although I have done a reasonable bit of trading this year to move shares to an ISA, but even then I just bought the same shares I’d sold as I was pretty much happy with the performance.
    You do have to check the performance though, as I have Tesco shares, a couple of years ago this was considered a no brainer buy and forget investment, which I’ve got the double whammy of capital erosion and the interim divi cut, so sometimes it does pay to sell, which I should have done a while back, I guess you just have to live and learn!

    • Under The Money Tree September 6, 2014, 12:02 pm

      Steve,
      Moving long term holdings into an ISA/NISA is always a very good idea and is a good excuse for ‘trading’. I think you’ve nailed it when you say uou have to learn. It’s so easy to make investment mistakes and not make the effort to learn from them and make sure your future decisions don’t fall down the same trap.

      So, with Tesco are you sitting tight or jumping ship?

      • Steve September 6, 2014, 2:56 pm

        @UTMT

        I’m in three minds about Tesco, hold out and hope for some recovery (that’s not worked so far as a strategy!), sell some or sell the whole lot.
        I’m leaning more towards jumping ship, walk away, lick my financial wounds, then put the money elsewhere as I think they’ve got further to fall. The cut in the interim dividend didn’t help and could be a sign that the final will be cut as well, which means the dividend isn’t really worth hanging around for whilst I wait for the recovery either.

        • Under The Money Tree September 6, 2014, 3:27 pm

          Steve,

          I think I’m with you. I don’t own any Tesco currently but have followed the stock for quite a few years. The thing that makes it a clear sell for me is that there is no clear strategy set out as to how they will turn things around. On the one hand they’re cutting prices, on the other they’re spending dosh trying to make their stores a bit posher (though those plans are now being ‘slowed down’….it all seems a little all over the place for my liking. Add on the fact that our shopping habits are changing and out of town hypermarkets are no longer what the masses want and I think Tesco have their work cut out to get things back on track.

          IF I did own any, I’d be selling and moving on. However, that is easy for me to say as I’m not nursing a loss.

  • ermine September 6, 2014, 2:49 pm

    Works for me too. I’m okay at buying, ideally in times of trouble, but rotten at selling. So I stopped doing it, and saw things improve – dramatically. Even dogs started to buy themselves out with divi payments (where I own individual stocks, I am on the HYP side of things).

    If there’s one thing that improved my batting average, it was that. I haven’t sold for two years now, with the exception of selling to bed and ISA and selling to diversify Sharesave shares because else I would have too much one-company exposure.

    And if I have to watch TSCO go all the way down the toilet, well, so be it. I can afford to let it go, because focusing on one side of the balance makes things simpler, and more profitable in aggregate it seems.

    • Under The Money Tree September 6, 2014, 4:57 pm

      ermine,

      I like your logic, stick to what you’re good at 🙂

  • weenie September 10, 2014, 8:11 pm

    I only recently started buying individual shares and my plan is to buy and hold.

    Oh and I bought some Tesco shares just before they announced the dividend cut – well, what do I know, eh!?

    May as well keep ’em and see what happens.

  • Ash @ Sterling Effort September 17, 2014, 11:31 pm

    I’m with you on the dividend thing! I love getting dividends, and I love watching them grow. My typical rule is “hold it until it doesn’t make sense anymore”. For me, that used to mean hold it until the investment proposition is no longer viable. But I’ve revised my terms, today, actually. My new rule is “hold it unless you could achieve a higher return elsewhere”. Making 9% a year might make someone a reasonably successful investor, but if they could make 18% a year by starting a small business, that’s where things get complicated.

    • Under The Money Tree September 18, 2014, 2:58 pm

      Ash,

      I fully agree with your principle and wish you luck in your endeavours. However I do have a few thoughts/observations based on my experiences as both a small business owner and investor.

      Effort required: How much of your time and energy will that small business swallow up compared to your investment portfolio.

      Longevity: Given the success rates of small businesses what happens if the business fails within 2 years and takes your capital with you? Don’t forget your old investment friend….diversification.

      Tax: Don’t forget that a business pays taxes on profits. Getting money out of a small business can cause complications,  pay yourself a small wage and the rest in dividends is usually best. It can work but you’ll find a small business will complicate your finances somewhat.

      Risk: I’m pretty conservative with my finances so don’t take these points all as negatives! Most successful business owners have taken big risks at some point so feel free to ignore me 😉 

      Ultimately I believe a balanced approach is best (for me at least) where you consider the risk/reward profile of your whole portfolio. Chasing just the highest yield for your capital at the expense of everything else usually ends in tears. 

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