10-01-2016, 10:24 PM
Very good question.
Of course in DGI the dividend plays a very important role, both because it's predictable and because it's growing. I don't really calculate things like "I'll get $600 over 5 years for this investment", rather I look at it "I'll get $125 growing at an estimated 5% (plus any reinvestments) per year from this investment for the rest of my life." So in your example: yes you did manage your goal in 1 year instead of 5. But what happens afterwards?
And this leads me to the way I decide whether to sell or not.
When selling a company, I do not consider the gains/losses I will realise. (except for tax purposes). Because that is the past, I'm aiming for the future. So if you sell company A, then where will that money go? As you stated, it'll go to another DGI stock... stock B in this example.
So then the question really becomes "which one of these stocks do I think will do better in the future?" The past performance of stock A and the profit/loss you will realise from it doesn't matter, the choice has to come down to which company you estimate to be a better performer in the future.
So if you feel that stock A is overvalued currently and you're better off putting that money somewhere else, or even keeping it as cash, then by all means you should sell. However if your only reason for selling is "it's up 60%" then I don't see the point.
A couple of small things to add.
-keep in mind the tax consequences of selling your holdings. They can make a big difference.
-If you find a great opportunity in company B, that doesn't necessarily mean that you should sell company A. There are other ways (such as margin accounts) that allow you to get some cash fast in order to take advantage of the opportunity you've found.
Of course in DGI the dividend plays a very important role, both because it's predictable and because it's growing. I don't really calculate things like "I'll get $600 over 5 years for this investment", rather I look at it "I'll get $125 growing at an estimated 5% (plus any reinvestments) per year from this investment for the rest of my life." So in your example: yes you did manage your goal in 1 year instead of 5. But what happens afterwards?
And this leads me to the way I decide whether to sell or not.
When selling a company, I do not consider the gains/losses I will realise. (except for tax purposes). Because that is the past, I'm aiming for the future. So if you sell company A, then where will that money go? As you stated, it'll go to another DGI stock... stock B in this example.
So then the question really becomes "which one of these stocks do I think will do better in the future?" The past performance of stock A and the profit/loss you will realise from it doesn't matter, the choice has to come down to which company you estimate to be a better performer in the future.
So if you feel that stock A is overvalued currently and you're better off putting that money somewhere else, or even keeping it as cash, then by all means you should sell. However if your only reason for selling is "it's up 60%" then I don't see the point.
A couple of small things to add.
-keep in mind the tax consequences of selling your holdings. They can make a big difference.
-If you find a great opportunity in company B, that doesn't necessarily mean that you should sell company A. There are other ways (such as margin accounts) that allow you to get some cash fast in order to take advantage of the opportunity you've found.