Add to Current Positions or Start New?

[CritMass]

Good Saturday. In a couple of weeks, I'm transferring approx $23,000 from my variable annuity 403-B into my Vanguard IRA. I want to start 4 new positions of dividend growth companies. I currently have approx 15 dividend growth small positions. I'm wondering if I should add to current or go ahead and start new? Thoughts? cw

[Dividend Watcher]

Interesting question, CritMass. I'm hesitating because I don't know your age, your plans, the size of your portfolio (other than you have 15 small positions ?) and your goals. I can only add what I do and how I would approach it.

Do you have an investment plan? See Bob Wells' and David Van Knapp's articles on Seeking Alpha about the topic. I ignored this for a long time and my portfolio was all over the place. Then one day I dove in and started working on it. It's always a work in progress but now at least I've got goals and roadmaps.

For example, I took a look at where my wife & I stand and what we could reasonably accumulate. From that I conjectured that I'd like about 25-30 positions in my IRA and my wife could reasonably expect to hold 20-25. These are based on a full position being no less than $2k in current dollar value since smaller holdings would produce minimal results for the effort.

Of these, I eventually want to hold at least one company in each of the S&P/GICS 10 major industry categories for sector diversification.

From these I built a spreadsheet. One page is my current holdings so I can update and see what the portfolio is doing. The second page lists the current holding plus what I want to hold at retirement age and the percentage of the portfolio for each. Anything that's not in the portfolio now is a placeholder and, if there's a better bargain that presents itself for that category, I purchase it and replace the other. Also, if something is really beaten down by Mr. Market and it's not on the list, I'll still buy and make room for it if I think it has good prospects.

For example, my wife doesn't hold a household products stock (PG, CLX, CL, UL, KMB, etc.). Right now, I have CL on her wish list page but PG is getting really attractive price-wise here -- moreso than CL. I may purchase PG when the cash is available and replace CL on the wishlist.

Now, my wife holds 15 positions. 6 are partial positions since I wanted to broaden the portfolio and start the compounding process with reinvested dividends. As cash becomes available, I'm always torn between adding to the partial positions or adding a new one since she's not at the goal of 20-25 yet. Partly I look at the valuation of the ones she already holds, the valuation of ones I want to add and what I can expect in cash deposits to the brokerage account in the near future. Since we both are business owners in cyclical businesses, the cash available is not the same throughout the year.

Do you want to purchase a whole position in one shot? Sometimes dollar cost averaging gives you a better yield and average cost. Other times, you may want to put your money down in one buy. For example, in the Great Recession CVX was at a P/E of 5 and yielding just over 4%. To me, that was a "buy in one shot" no-brainer.

So, as to your question, what do YOU think? Maybe a couple of new positions and fill in some of your smaller holdings? What is the valuation of the companies you are thinking of? No one can really answer that but you. From my own willy-nilly investment days, I can honestly say creating a plan really helps ground your thinking.

Sorry for this long-winded reply. I mentioned in my introduction I can blab on-and-on at times. As I used to say on another message board I frequented -- take what is of use to you and throw away the rest.

[CritMass]

(02-01-2014, 12:39 PM)Dividend Watcher Wrote: Interesting question, CritMass. I'm hesitating because I don't know your age, your plans, the size of your portfolio (other than you have 15 small positions ?) and your goals. I can only add what I do and how I would approach it.

Do you have an investment plan? See Bob Wells' and David Van Knapp's articles on Seeking Alpha about the topic. I ignored this for a long time and my portfolio was all over the place. Then one day I dove in and started working on it. It's always a work in progress but now at least I've got goals and roadmaps.

For example, I took a look at where my wife & I stand and what we could reasonably accumulate. From that I conjectured that I'd like about 25-30 positions in my IRA and my wife could reasonably expect to hold 20-25. These are based on a full position being no less than $2k in current dollar value since smaller holdings would produce minimal results for the effort.

Of these, I eventually want to hold at least one company in each of the S&P/GICS 10 major industry categories for sector diversification.

From these I built a spreadsheet. One page is my current holdings so I can update and see what the portfolio is doing. The second page lists the current holding plus what I want to hold at retirement age and the percentage of the portfolio for each. Anything that's not in the portfolio now is a placeholder and, if there's a better bargain that presents itself for that category, I purchase it and replace the other. Also, if something is really beaten down by Mr. Market and it's not on the list, I'll still buy and make room for it if I think it has good prospects.

For example, my wife doesn't hold a household products stock (PG, CLX, CL, UL, KMB, etc.). Right now, I have CL on her wish list page but PG is getting really attractive price-wise here -- moreso than CL. I may purchase PG when the cash is available and replace CL on the wishlist.

Now, my wife holds 15 positions. 6 are partial positions since I wanted to broaden the portfolio and start the compounding process with reinvested dividends. As cash becomes available, I'm always torn between adding to the partial positions or adding a new one since she's not at the goal of 20-25 yet. Partly I look at the valuation of the ones she already holds, the valuation of ones I want to add and what I can expect in cash deposits to the brokerage account in the near future. Since we both are business owners in cyclical businesses, the cash available is not the same throughout the year.

Do you want to purchase a whole position in one shot? Sometimes dollar cost averaging gives you a better yield and average cost. Other times, you may want to put your money down in one buy. For example, in the Great Recession CVX was at a P/E of 5 and yielding just over 4%. To me, that was a "buy in one shot" no-brainer.

So, as to your question, what do YOU think? Maybe a couple of new positions and fill in some of your smaller holdings? What is the valuation of the companies you are thinking of? No one can really answer that but you. From my own willy-nilly investment days, I can honestly say creating a plan really helps ground your thinking.

Sorry for this long-winded reply. I mentioned in my introduction I can blab on-and-on at times. As I used to say on another message board I frequented -- take what is of use to you and throw away the rest.

Thanks a lot, Dividend Watcher. I read your articles on SA frequently, and yes, Bob Wells and David Van Knapp, along with several others, have been excellent teachers for the past couple of years, since I first discovered SA. Unlike Bob, I am lacking a concrete plan. As you gathered, I am all over the place, but am amassing all of the top-name, blue chip dividend growth usual suspects. I'm 61 and will retire in late summer with a state of Fla pension. Will also gain access to significant retirement funds at that time that will roll into my VG IRA. So I guess I just talked myself into writing up my plan with goals. Thanks for your excellent response. cw

[Dividend Watcher]

(02-01-2014, 12:56 PM)CritMass Wrote: So I guess I just talked myself into writing up my plan with goals.

Well, congratulations on the upcoming retirement!

Yes, buying the big names and hoping for the best is something but it is so much better with a plan. It will give you some piece of mind about where you are and where you're going.

Remember, it doesn't have to be perfect on the first try. You'll want to adjust and adapt as you learn new things. Over 4 years, I'm still revising.

[Kerim]

Hi CritMass -- I of course agree with all of DW's great advice. I especially agree that the answer to your specific question depends on diversification and valuation. If you think you'll want a lot more of a company than you already hold, and if that company is trading at a price that is attractive to you, then I would not let the desire to initiate a new position stop you from adding to a current position. I would put money into the companies that have the better combination of price and long-term safety / potential as a dividend growth stocks, regardless of whether I already held some.

Said differently, I would not let the desire to increase the number of stocks I hold induce me to put money into my second or third-best ideas. Unless you are already seriously overweight a name, put your money into the best prospects, whether or not you already own some.

[Dividend Watcher]

CritMass, looks like Santa is coming early for you this year. Prices across the board are mostly getting into the reasonable range. Time to get your plan (version 1.0) together and get your buy list in order.

Now if prices keep going down or hold til the money you anticipate to be there arrives. I'm looking forward to reinvesting dividends over the next few weeks.

[CritMass]

(02-02-2014, 04:24 PM)Kerim Wrote: Hi CritMass -- I of course agree with all of DW's great advice. I especially agree that the answer to your specific question depends on diversification and valuation. If you think you'll want a lot more of a company than you already hold, and if that company is trading at a price that is attractive to you, then I would not let the desire to initiate a new position stop you from adding to a current position. I would put money into the companies that have the better combination of price and long-term safety / potential as a dividend growth stocks, regardless of whether I already held some.

Said differently, I would not let the desire to increase the number of stocks I hold induce me to put money into my second or third-best ideas. Unless you are already seriously overweight a name, put your money into the best prospects, whether or not you already own some.

Thanks for the good advice, Kerim. I guess I'm very fortunate to be able to pull money out of a high cost, low return insurance company variable annuity "mutual fund" type of product (my only option is a 403-B while working for a public school district - at least it is tax deferred), and have the entire universe of stocks, bonds, mutuals and ETFs to pick from. Like a kid in a candy store. Thanks again for the encouragement.

---

(02-03-2014, 02:21 PM)Dividend Watcher Wrote: CritMass, looks like Santa is coming early for you this year. Prices across the board are mostly getting into the reasonable range. Time to get your plan (version 1.0) together and get your buy list in order.

Now if prices keep going down or hold til the money you anticipate to be there arrives. I'm looking forward to reinvesting dividends over the next few weeks.

DW, yes, the ability to invest 2013 403-B dollars now unlocked into 2014 anything is like a visit from Santa. In terms my 1.0 plan, my head is spinning. A month or so ago I bookmarked a SA article by Inzkeeper on her(?) method of allocation. She is breaking down her portfolio by the following: US vs Canadian/International; across Risk factors based on Dennis Miller's article(s); across sectors; across Dividend percentages; and across dividend growth rates. I also have Bob Wells' portfolio list from several months ago that I've compared with one of Regarded Solutions' portfolios ( now only visible if you pay him money) and then there is the Chowder Rule, not to mention Mr. Fish's CCC listing. Whew! if I can synthesize some of this then maybe, just maybe my 1.0 p,an will begin to take shape. Thanks for your kind encouragement.

[hendi_alex]

There is no reason to immediately go shopping just because cash is burning a hole in one's pocket. Make a list of buy candidates, then decide on an entry point, and finally sit and wait patiently on the price to come to you. As far as whether to look for new candidates or add to existing ones. To me that only requires the answer to two questions. Are the existing holdings the best value in the current market and will adding shares take the position closer to target weighting?

[CritMass]

(02-10-2014, 09:46 AM)hendi_alex Wrote: There is no reason to immediately go shopping just because cash is burning a hole in one's pocket. Make a list of buy candidates, then decide on an entry point, and finally sit and wait patiently on the price to come to you. As far as whether to look for new candidates or add to existing ones. To me that only requires the answer to two questions. Are the existing holdings the best value in the current market and will adding shares take the position closer to target weighting?

I am still in the construction stage of my DGI portfolio, and there are some core positions I want to establish. The target weighting will come at the end of summer when I retire and can access some currently locked-up retirement funds. Between now and end of summer, I plan to develop my "investment plan", so as to have a roadmap for deploying some significant savings in a half a year. Currently, all but one of my positions in my DGI portfolio is less than 2%. The one I am overweight in (SO) has been a huge cash cow and am selling it off annually to fully fund my Roth for the year. Also sold some last year to gift part of a downpayment on my daughter/son-in-laws first home purchase.
Thanks for your help, Alex. -Chris

[CritMass]

Well, in the spirit of jump-starting this thread, and adding to the discussion, here is what I did in terms of adding to existing or starting a new position(s):

I had a tad less to invest than originally expected in my first post. I took about a fourth of what I had to invest, and bought a new position in McDonald's. Then took about another fourth and added to a position I had in AT&T. That was about two weeks ago. Today, I took the balance and split it almost equally between adding to my KO and my GE positions. Thanks for reading.

[Dividend Watcher]

CritMass, that sounds like very good choices. T seems to be around fair value, same with MCD & GE. KO, although not a screaming value in the Graham sense, seems to have been a choice bet once yield exceeds 3%.

Now the hard part -- patience.

[rnsmth]

I did both in December with roll overs. I am of the opinion that it does make sense to go shopping right away and put the money to work for you. There are always attractively valued dividend growth stocks available - always attractively valued and undervalued companies.

If one you want does not fall into those categories, put it on your watch list-do not overpay, but Remeber the strong often get stronger.