I was reading Brian Tracy’s Million Dollar Habits (the eBook version is free with a eNewsletter sign up – the eNewsletters are free to receive also, they do contain advertising but the quality content more than offsets) this morning. Tracy is a big fan of resetting everything to zero. Forgetting the past and looking at the future with new eyes.
Great advice for our investment portfolios.
I have this one stock in my fun portfolio. It was a speculation buy (i.e. I didn’t do my research and got caught up in hype). I bought it at $1.50. I saw it go down to $1.00. I looked at it and thought “Why did I buy this? It is a dog. I should sell.”
I didn’t sell.
Why? Because I paid $1.50 for it (I didn’t buy much thankfully). Did the market care that I paid $1.50 for it? Nope. It went down to $0.40.
I should have, if I was thinking rationally, looked at the stock while it was at $1 and asked myself “Would I buy it at $1?” If the answer was no (and it was), I should have sold it. The $1.50 was gone (likely never to return).
So I asked that now. “Would I buy this stock at $0.40?” And the answer is… likely. I think its worth $0.40. $1, no. $0.40, yes.
That is why I tend to look at current yields instead of what I purchased the stock at. If the percent yield has went down substantially because the share price has gone up, it is reminder to consider cashing out. If I can find a comparable company with a higher yield than that tells me that either my stock is overpriced or the comparable stock is underpriced. Either way, I’ll consider making the move.