10-03-2016, 05:26 PM
Amos, excellent question. Had to think about how I would handle it and the ramifications. There are lots of variables here so you need to decide what works for you.
The first thing I'd look at is the valuation where you started and where it is now with that 60% capital gain.
For example, suppose you bought when it was to some measure undervalued and now, because Mr. Market finally realized its mistake, the price is closer or slightly above fairly valued. In this case, I'd probably let it ride and collect the dividend. Who knows how long it will be until the price becomes a bargain again. Now you're sitting there with a nice margin of safety should something serious happen and you need that money.
However, suppose you opened your position when it was around fair value and now it's far above where you think it should be priced at. Is the P/E far above what you think would be justified in the next couple years? Is there a risk that it could sell off back to fair value in the near future or is the company apt to just sit there and wait for fundamentals to "grow" into its new valuation. It helps to look at history here. In this case, unless the P/E was grossly high (think KO with a P/E of 40 of many years ago), or the company can't grow into the new valuation in the next couple years, I'd probably be tempted to hold.
Another factor I would take into account, and I mentioned it above, is what are the company's prospects for the next few years. If you expect it to continue growing at a decent clip, then perhaps standing pat is the better part of valor.
As I also mentioned, what are you going to do with the proceeds? Do you have a better alternative waiting in the wings? Do you feel the need to build up cash? Are you nervous about losing this "windfall"?
Lastly, how long will it be before you need this money to meet your goals?
Only you can decide whats "best" for you. Good luck.
The first thing I'd look at is the valuation where you started and where it is now with that 60% capital gain.
For example, suppose you bought when it was to some measure undervalued and now, because Mr. Market finally realized its mistake, the price is closer or slightly above fairly valued. In this case, I'd probably let it ride and collect the dividend. Who knows how long it will be until the price becomes a bargain again. Now you're sitting there with a nice margin of safety should something serious happen and you need that money.
However, suppose you opened your position when it was around fair value and now it's far above where you think it should be priced at. Is the P/E far above what you think would be justified in the next couple years? Is there a risk that it could sell off back to fair value in the near future or is the company apt to just sit there and wait for fundamentals to "grow" into its new valuation. It helps to look at history here. In this case, unless the P/E was grossly high (think KO with a P/E of 40 of many years ago), or the company can't grow into the new valuation in the next couple years, I'd probably be tempted to hold.
Another factor I would take into account, and I mentioned it above, is what are the company's prospects for the next few years. If you expect it to continue growing at a decent clip, then perhaps standing pat is the better part of valor.
As I also mentioned, what are you going to do with the proceeds? Do you have a better alternative waiting in the wings? Do you feel the need to build up cash? Are you nervous about losing this "windfall"?
Lastly, how long will it be before you need this money to meet your goals?
Only you can decide whats "best" for you. Good luck.
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan