Advice on Diversification

[kered]

I purchased 40 shares of Lowes roughly 9 years ago through ESPP at an average of $21.40 a share. More about that later.That was my first foray into stocks and the past few years I've dabbled a little more but never really got serious about it. The past year and a half I've learned a lot and now actually do a ton of research into stocks before I buy rather than just pick a company I like. Since March I've really ramped up my buying because I recognized a lot of stocks were unduly punished.

I've really honed in my process of picking stocks. My plan is to pick solid companies that are undervalued and have a safe dividend above 3%. I typically only buy roughly $150 at a time. I know I'm a small timer but hey gotta start somewhere.

Currently that initial purchase of Lowes has a return of 716%. Unfortunately, at the time I had no clue and never did any dividend reinvestment. Lowes is currently 68% of my portfolio and I was going to just keep buying stocks in other sectors till I'm properly diversified. It hit me yesterday that it is currently at all time highs of $173 and only has a yield of 1.39%. Why wouldn't I sell a good chunk of it and buy other higher yielding stocks? 

I can't think of much downside to that. I'll become more diversified, be earning a higher yield, and should be able to have higher returns overall as I feel Lowes is properly valued and I would be purchasing other stocks that are not.

I feel its the right choice but i guess I'm just looking for validation. Thanks!

[fenders53]

(10-10-2020, 12:58 PM)kered Wrote: I purchased 40 shares of Lowes roughly 9 years ago through ESPP at an average of $21.40 a share. More about that later.That was my first foray into stocks and the past few years I've dabbled a little more but never really got serious about it. The past year and a half I've learned a lot and now actually do a ton of research into stocks before I buy rather than just pick a company I like. Since March I've really ramped up my buying because I recognized a lot of stocks were unduly punished.

I've really honed in my process of picking stocks. My plan is to pick solid companies that are undervalued and have a safe dividend above 3%. I typically only buy roughly $150 at a time. I know I'm a small timer but hey gotta start somewhere.

Currently that initial purchase of Lowes has a return of 716%. Unfortunately, at the time I had no clue and never did any dividend reinvestment. Lowes is currently 68% of my portfolio and I was going to just keep buying stocks in other sectors till I'm properly diversified. It hit me yesterday that it is currently at all time highs of $173 and only has a yield of 1.39%. Why wouldn't I sell a good chunk of it and buy other higher yielding stocks? 

I can't think of much downside to that. I'll become more diversified, be earning a higher yield, and should be able to have higher returns overall as I feel Lowes is properly valued and I would be purchasing other stocks that are not.

I feel its the right choice but i guess I'm just looking for validation. Thanks!

Yes. yes. yes diversify!!! I happen to be in the home improvement BIZ.  I have a part-time retirement gig at HD.  I have a lot of fun jokingly trashing "dirty Lowes" with customers when they slip and say the "L word" lol.  LOW is a great company.  They'll do fine short-term if the next stimulus check comes.  Longterm HD and LOW are getting over-valued for sure.  These record revenues will pass soo enough.  I am not suggesting you cash out of LOW, but tiptoeing out gradually into other sectors is my advice.  I don't care if you have been investing 6 months, 2/3rds of your port in one stock is a lotto shot n experienced investor would NEVER do.

[fenders53]

(10-10-2020, 01:22 PM)fenders53 Wrote:

(10-10-2020, 12:58 PM)kered Wrote: I purchased 40 shares of Lowes roughly 9 years ago through ESPP at an average of $21.40 a share. More about that later.That was my first foray into stocks and the past few years I've dabbled a little more but never really got serious about it. The past year and a half I've learned a lot and now actually do a ton of research into stocks before I buy rather than just pick a company I like. Since March I've really ramped up my buying because I recognized a lot of stocks were unduly punished.

I've really honed in my process of picking stocks. My plan is to pick solid companies that are undervalued and have a safe dividend above 3%. I typically only buy roughly $150 at a time. I know I'm a small timer but hey gotta start somewhere.

Currently that initial purchase of Lowes has a return of 716%. Unfortunately, at the time I had no clue and never did any dividend reinvestment. Lowes is currently 68% of my portfolio and I was going to just keep buying stocks in other sectors till I'm properly diversified. It hit me yesterday that it is currently at all time highs of $173 and only has a yield of 1.39%. Why wouldn't I sell a good chunk of it and buy other higher yielding stocks? 

I can't think of much downside to that. I'll become more diversified, be earning a higher yield, and should be able to have higher returns overall as I feel Lowes is properly valued and I would be purchasing other stocks that are not.

I feel its the right choice but i guess I'm just looking for validation. Thanks!

Yes. yes. yes diversify!!! I happen to be in the home improvement BIZ.  I have a part-time retirement gig at HD.  I have a lot of fun jokingly trashing "dirty Lowes" with customers when they slip and say the "L word" lol.  LOW is a great company.  They'll do fine short-term if the next stimulus check comes.  Longterm HD and LOW are getting over-valued for sure.  These record revenues will pass soon enough.  this is too good to last.  I am not suggesting you cash out of LOW fast, but tiptoeing out gradually into other sectors is my advice.  I don't care if you have been investing 6 months, 2/3rds of your port in one stock is a lotto shot an experienced investor would NEVER do. Do that long enough with a mature retail company and you'll get smoked a high percentage of times.

[kered]

After a bit of research today I've decided to sell 30% of my LOW stock and pick up an even amount of MO, ENB, PRU, PFE, OMC, and IRM

[fenders53]

Just go slow, and trade quality for quality. I doubt anybody here will tell you LOW isn't a great company going forward. It won't surprise me if it runs higher if stimulus is in time for Christmas. Next year's comps will be brutal to match.

[crimsonghost747]

Well you have already made your moves. And I think it was a pretty appropriate one. Having a larger part of your portfolio in a stock you really like is fine, but having more than half of your portfolio in one stock is just a very risky move.

Now that you sold 30%, it does look to be more balanced and you can always fine tune your balancing by directing the new money into a sector/stock that has a low weight.

[kered]

I haven't officially made the moves yet. I can only trade during Market hours but I plan on making those moves tomorrow. Any input on the new stocks I have chosen is appreciated. I already own a little of all of them except for ENB. Any other companies i should be looking at?

[crimsonghost747]

Well personally I believe anything cigarette related is just a bad investment. I've been saying this for years and also sold out of my cigarette stocks several years ago. I just view that cigarettes are on their way out. Yes MO is cheap but it is cheap for a reason.

I'd be careful with OMC here as a lot of companies have cut on advertising. There is a chance that less ad spending is a permanent trend instead of a quick cost saving measure in 2020. I've owned them before and might own them again at some point so nothing wrong with the company itself.

PFE is always good, just be sure you know the details around the spinoff that will happen soon.

Overall I think it's a pretty decent strategy to just keep adding to what you already own, especially if you see some good value in those shares.

[fenders53]

(10-11-2020, 10:36 AM)kered Wrote: I haven't officially made the moves yet. I can only trade during Market hours but I plan on making those moves tomorrow. Any input on the new stocks I have chosen is appreciated. I already own a little of all of them except for ENB. Any other companies i should be looking at?

After 25 years of owning PFE I can make a solid case it's not "always good".  Some of the shares I bought 20 years ago are only down 10% lol.   DRP saved me some though. That said I like PFE well enough at 36 or less.  (I like BMY, LLY, JNJ and MDT better though)  MO at <40.  EB <30.  I own all of these.  PRU will be OK long-term but low interest rates are challenging.  I don't follow the others you listed.  Most quality stocks are just not on sale this month.  I would put some of the funds in something "cash-like".  I think you'll get a chance soon enough to find deals and I don't think the wait will be too long.   For the very longtime it may not matter so much as long as you keep adding.

[Dividendwayfarer]

This is a moot point as you already made the moves. However let me hijack this thread and ask a portfolio management/investment question.

Why would you want to sell for the sake of diversifying? LOW is a great stock (HD too so don’t jump on me fenders) and it has served you well. Why don’t you let the winner run and just buy stocks in other sectors? You will get to your targeted diversification by sector in the long run. IMO, LOW is not overvalued. The forward PE is under 20 and the peg ratio is under 1.5. I know I am betting on future growth but I missed many good opportunities of buying stocks because it seems overvalued at the time. If you have a large position in some high flyer tech stocks then I agree it’s prudent to trim. It may be the best time to add on LOW now if I ask myself 5 years later.

[fenders53]

(10-14-2020, 07:19 PM)Dividendwayfarer Wrote: This is a moot point as you already made the moves. However let me hijack this thread and ask a portfolio management/investment question.

Why would you want to sell for the sake of diversifying? LOW is a great stock (HD too so don’t jump on me fenders) and it has served you well. Why don’t you let the winner run and just buy stocks in other sectors? You will get to your targeted diversification by sector in the long run. IMO, LOW is not overvalued. The forward PE is under 20 and the peg ratio is under 1.5. I know I am betting on future growth but I missed many good opportunities of buying stocks because it seems overvalued at the time. If you have a large position in some high flyer tech stocks then I agree it’s prudent to trim. It may be the best time to add on LOW now if I ask myself 5 years later.

Because he is 70% in a single stock?  Diversification is a key tenet of responsible investing.  There is no stock on this earth worthy of 70% of your port.  Whether it worked the last 25 years still doesn't justify it.  XOM or GE might be a good examples, but if not there are a hundreds more that ended far worse.  A ten year bull market jades our opinions for sure.  There are a lot of mediocre stocks you could have put all your money in and done well enough.  Doesn't make it a sound strategy.

[ken-do-nim]

Thanks to my divorce, I'm 90%+ in my company stock. It's done quite well, but yeah if tech pops, so goes my life savings.