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I don't make a whole lot of sales within my portfolio, preferring to buy and hold for the long term. However, some of these moves in the markets are definitely making me at least consider trimming or closing positions. To me the sell decision is so much harder than the purchase because now you start introducing future market action as well as the relative values between the replacement options or moving into cash.
Many companies are, at best, trading on the high end of their fair value range if not outright overvalued. So the question becomes how much is too much to where you want to call it quits and move somewhere else.
Look at Realty Income (O) for example. Management is forecasting for full year AFFO , the quasi-equivalent to earnings per share for a corporation, of $2.85 to $2.90. That puts the P/AFFO around 24 for a company that typically plods forward slowly but surely. Due to the overvaluation the yield on the shares has been pushed down to 3.42%. Take a look at the current valuation of Realty Income compared to the 5 year average according to Morningstar.
|Realty Income Valuation From Morningstar|
- The share price experiences a sharp decline the bring the market valuation more in line with the company valuation. If I hold through that then it seems like a waste of potential capital to not lock in some gains.
- The share price just kind of languishes here at these levels until the business value grows into the current valuation. If I hold through that then returns would just come from dividends until the business catches up to the valuation which would lead to minimal returns.
I'm not 100% sure on what I'll do although I'm very much considering at least trimming my position some. If you don't mind I'm curious to hear y'alls thoughts on when you would sell a high quality company due to overvaluation so please answer the question below.
Also, I'm still looking for sector/industry market returns since say the mid 90's until now or at least the mid 2000's. If anyone knows where I can find that I'd truly appreciate it.
The Devil's Financial Dictionary by Jason Zweig (affiliate link) is a nice little time killer that gives brutally honest and often humorous definitions of different finance and investing terminology.
Today's word/definition is:
"Short-Term, adj. - On Wall Street, thirty seconds or less-as opposed to long-term, which is thirty seconds or more."On to the Roundup
In case you missed them, here's the posts from Passive-Income-Pursuit over the past week.
- Dividend Update Preview - June 2016 Infographic
- Johnson & Johnson: Steady and Predictable on Seeking Alpha
- Dividend Update - June 2016
Once again I'd like to say thanks to each and every one of you that read, commented, and shared posts from here this past week. I think this dividend growth investing and financial independence community is amazing and the openness from everyone is awesome. Thanks again!
Now on to the links!
Should You Celebrate When Your Dividend Paying Company Is About To Be Acquired? by Dividend Growth Investor
Life Reflection by Tawcan
Too Rich For My Blood by Income Surfer
How To Use Finviz To Find Bargain Dividend Stocks For Free by Sure Dividend
Passive Income Update - June 2016 by Roadmap2Retire
Yield on Cost - How to Calculate It and How to Apply It by Simply Safe Dividends
Dividend Income Update June 2016 by DivHut
Investing With The Masters: Ron Baron by Financially Integrated
Independence Day And Our Financial Independence Message by Our Next Life
10 Stocks I Bought Last Quarter by Retire Before Dad
Benjamin Graham On Financial Advisors by A Wealth of Common Sense
2016 Goals At Mid Year by Dividends In Hand
A Dozen Things I've Learned From Mike Maples, Sr. About Business And Investing by 25iq
Selling Three Winners by DivGro
Also, if you're looking for investment ideas, A Frugal Family's Journey keeps a list of stock analyses and recent buys from fellow bloggers.
I hope you all have a great weekend!
Image courtesy of Gubgib on FreeDigitalPhotos.net.