Before I discuss selling stocks, let’s do a recap of the Stock Picking posts up until now.
Here, I introduce my stock searching process for Canadian and US stocks. I feel more confident in stocks that have higher trading volume. I look for major Canadian stocks under $20 that trade over 10,000 shares a day. For US stocks, they must be over $5 and average at least 500,000 shares a day.
I talk about the different reasons you might want to buy stocks. There are different stocks for different investment objectives better suited by shorter or longer-term time horizons. Whether the time horizon is short, medium, or long, I like to get in early before a stock’s price really starts to take off. To determine this, I look at a stock’s price history chart. For shorter-term trades, I seek additional information by looking at the charts of a stock’s corresponding sector and the market.
I generally look for stocks in a sector that has been quiet for a while and is just starting to warm up. I’m not as concerned if a sector has been lagging the market, as long as it’s not going down the tubes, especially if the market isn’t. If I’m interested in several stocks in a sector that is starting to heat up, then I’ll pick the stocks that meet my criteria in volume, price, and charts.
Stock picking is not for everyone as it’s hard to outperform the market. It’s a matter of strategy, research, and some luck. You can simplify the whole process if you ‘buy the market’ by buying the market index ETF. What’s great is that you can also get extra money from an ETF’s distributions or dividends. You can buy ETFs for the Canadian, US, or international markets, or even sector ETFs. You can have a whole portfolio of just ETFs to meet a variety of investment objectives!
Here, I discuss my interest in stocks that pay dividends and how I invest in the blue chippy stocks for my retirement fund. What a great source of income as you can also enjoy a profit if you sell your shares later on at a higher price! For these income-generating stocks, I’m less concerned about their sectors.
Here are a few reasons to:
My retirement fund will consist mostly of investment income-producing assets. I’m optimistic to a fault. This means I sit back thinking that most of the dividend-paying stocks for my retirement fund will be worth a lot more in share price too. When I’m a spry elderly lady, livin’ large, and planning my next world adventure, I’ll sell some of those shares and use the massive profits to pay for my trip. If the markets reach exaggerated highs, I might sell some shares to buy a decent annuity.
For my swing trades, I try to give a stock time as it moves within the profit zone, which is anywhere significantly higher than what I paid in share price. I look at the price charts to try to determine how far they’ll go before they experience a major selloff.
It’s a lot more realistic to expect a cheaper stock to double, triple, or increase multiple times in value. Once my investment has more than doubled in value, I usually sell half to 2/3rds of the shares and keep the rest of my shares in for the longer term. This way, I get back my principal investment and I can reinvest it along with the profits in another stock. If the remaining shares don’t keep going up in share price, I’ll sell them for a smaller profit — or break even at worst.
I’ve mentioned before that I like my Canadian stocks cheaper because my Canadian trading account is less funded. I also like them cheaper because I can buy more shares. I find that in general, Canadian stocks don’t move as quickly in price. I can still make money, even with smaller price moves, since I have a lot of shares. For my US swing trades, I use fewer shares than I do for Canadian stocks because they’re more expensive.
US stocks are good for swing trades mainly because they usually can move a lot more in price in a shorter amount of time than Canadian stocks. In other words, they get a lot of price action. I look for stocks that move on average at least $1 in share price in a day. The downside is, when stocks move faster, you have to act faster. If you’re not paying attention, it might get right into the profit zone and then sell off more quickly than it took to get there.
For more expensive stocks, it will take much longer for your total investment to double in its full value. This can take years. Sometimes you’ll have a jackpot situation where there’s a buyout; however, you can’t just wait and hope for these rare events to happen. So what swing traders do is decide how much of their investment they’re willing to risk losing (not all) and see if they stand to gain at least twice, three times or more that amount.
A lot of traders talk about ‘stops’ to minimize losses. A stop is basically your uncle point where you decide it’s better to take a calculated loss at a certain price than to lose more than that. Once a stop is determined, a trader will calculate how much he or she expects to gain and whether it’s realistic given the stock’s chart, its sector, the market, etc.
This is a trade I actually took this week. It had a good earnings report (are see-through yoga pants back in style?) and it jumped close to the triple reward zone. It was good enough for me, so I sold 80% of my shares at $71.90.
For my remaining 20%, I’ll hang on to see if it’ll keep going up. Each time it surpasses another risk-reward multiple ($74, $79, $84, $89), I’ll move the stop up on that. If it breaches any of those multiples, I’ll sell the rest.
I use a very loose form of the stop method as I found it to be a pain to bother with stops. I found that with most of these trades if I’d waited a bit longer, I wouldn’t have taken a loss–instead, I would’ve ended up with a huge gain. I found that once I started to set more loosey goosey expectations as to what I’m willing to lose and what I expect to gain, my trading account started to flourish. Yes, I am a loosey goosey swing trader.
I find that if the stock is of a good company in a strong sector, even if you had to endure the discomfort of underperformance, the only thing you really lose is time. Because once the stock really starts to rock, it was totally worth the wait.
This is why sectors are important. If the sector is strong and your stock is strong or stronger than the sector, then you reduce the chance of sitting painfully through negative numbers. If, however, your stock is much weaker than its sector and is going down while the sector is going up, then there could be something else going on with the company that you might have to look into.
Having said all this, I’m not saying to ignore your threshold for losses. You must figure out what works best for you and trade responsibly out of respect for your money. For me, a good swing trade is more than just price action. It’s a combination of factors such as the company, its sector, and the market. Since I consider multiple reasons, I’m okay with waiting out the unforeseen downturns and I don’t totally wig out if the price gets a little out of whack.
Thanks to a diverse portfolio, I only ever have a small fraction of underperformers while the others do well. Sometimes these turn a corner and become the top performers in my portfolio.
Why do I swing trade? I don’t live much of a structured life (although I sometimes crave one) nor do I have dependents. I have a higher risk tolerance so I can endure the dry spells and downturns and patiently wait for the profits. I’m quite happy to aggressively grow my account in the mid-term while my more solid stocks grow for the long-term. It’s exciting, interesting, engaging, and I can go on about the fun I get out of being tapped into the markets.
Making money like this isn’t for everybody. I’m only sharing my strategies so that curious readers will have a better idea of what I do with my own money. All of what I write is only for information sharing purposes.
While there is a risk component to any kind of investing, there are many ways to reduce that risk with good diversification. To do this effectively, it’s good to be knowledgeable, even of the investment basics. Most working people, in my opinion, are better off saving regularly for their goals and investing their extra savings with a part of it in conservative stocks and ETFs that pay a dividend. No doubt, a lot of money can be made this way!
Over the last couple of months, I’ve held off making any long-term buys for my retirement portfolio as I wanted to wait until after the US election. Now that it’s over, I can see how the markets, sectors, and stocks from both Canada and the US reacted. For the last week, JP and I had been watching stocks and making decisions on what to hold for the long haul. If there’s one thing they all have in common, they all pay a dividend.
The big goal with stocks is to be able to sell your shares at a higher price for a capital gain or profit. When stocks give their shareholders a dividend, then it makes it less desirable to sell your shares as they’re now a source of income!
If you’re buying stocks purely for dividend income, then the price you pay per share and what the sector and market are doing at the time have little significance. It’s intended as a long-term strategy and the idea is that over time, a dividend-paying stock of a good company should go up in value the longer it’s around and able to maintain dividend payments to its shareholders.
For me, these stocks are intended for my retirement fund. I’m still decades away from retiring, so I haven’t sold these stocks yet! With lesser ability to work and fewer job options, I want to have an investment source of income, and dividends are just that. In my opinion, this is the most simple form of stock investing and from a long-term perspective, the wisest.
If you have a blue chip company like a big bank or utility company you’d like to invest in for dividends, then you can accumulate shares over time, buying whenever it suits you. For me, when my stock goes down in price, I plan to buy more shares as it’s more affordable. I met a guy who buys shares of just one bank stock — his bank. He watches the stock price and whenever his stock takes a hit, he’s buying more shares. Over time, you can accumulate a lot of shares; the more shares you have, the more you make in dividend income.
So if you look up a stock on its company website, they’ll usually have its dividend payment schedule as well as what they pay their shareholders for each share they own. It’s usually on a quarterly basis, but sometimes dividends are paid monthly.
Here are some things to note:
My dividend-paying stocks so far are in utilities, energy, finance, and consumer staples. My discount brokerage doesn’t offer the DRIP option, so the money just comes in regularly into my investment account and it’s nice to see my portfolio increase in value from both the capital appreciation of my stocks and from regular dividend payments.
If you’re off stock picking, you can also buy shares of a dividend income ETF. The dividends that are generated by the stocks in the fund are paid to you in the form of distributions (but also often called dividends). I, too, own a preferred share laddered ETF that pays me a substantial dividend every month!