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  1. #1

    When to trim a stock position?

    In my income portfolio I look at CY and ROI. Stocks with CY below 3 and ROI near 8 get on my potential replacment list. I look for a 3.5% CY replacement.

    A current potential candidate for replacment is FAST which I have held for 30 months with CY 2.8 and 30 month ROI of 8.46.
    Of course, final replacment decision rests on taxability of sale and confidence in replacement.
    I will also sell or trim when outlook dims for a holding. Unfortunatly, when selling based on outlook I sometimes carry more cash than I want waiting to find a suitable replacment.

  2. #2
    In my case, FWIW, i would not typically sell any part of a position unless the stock is no longer filling the role i need it to play. This can happen if:

    - the dividend yield has dropped due to dividend cut. In this case i try to understand the reason for the cut. For example, when PFE cuts its dividend to acquire Wyeth, i am not concerned. But when FTR cuts its dividend because business performance is bad, i am concerned.

    - the quality of the company has diminished. This can happen, for instance, when T takes on too much debt, or when GE fails to remove a poor CEO for too long. Not that these things would ever happen :-)

  3. #3
    i do not worry too much about a strict adherence to allocation strategy - this depends on the company. For instance, if i had a allocation strategy saying that no company would deliver more than 5% of my dividend income, i would not be unhappy if JNJ delivered 10% of my dividend income, although i would be unhappy if KSS delivered 10% of my dividend income. Obviously this is a personal perspective.

  4. #4
    I bought HD summer 1986 200shrs then added many more in all my accts. @ one time had 16k shrs. couldn't take the big loses on dn. swings[1st. shrs. @ 35c ea.] now 162$ still own 3700shrs =1100per mo. divvy. also bought SCHW @ 45c shr. in early 90's still own 14900 shrs. owned MAR from early 80's & sold early in 2008 & never went back although it came back so diversified all $$$ into CEF's & PIMCO [ivacsyn] funds & it's much easier.

  5. #5
    I recommend using trading bands to rebalance your positions. For instance If your policy calls for a 20% allocation to XYZ, you would trim back to your policy allocation of 20% if and when it hit 25% or add to it if it fell to 15%. The 5% absolute band is just for allocations at and above 20%. Smaller allocation should use a 25% relative move within a specific allocation. Say you have a 10% allocation in an international fund, the band would be 25% of the asset value vs an absolute 5% move from the strategic allocation. So in the case of a 10% allocation the band would extend from 7.5% to 12.5% or a relative 25% either side of the allocation in question. Say you had a 4% allocation to something, an absolute 5% band would not be possible on the downside, therefore a relative 25% works just fine.


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