Never sell...... But

I've stuck to my guns and never sold a share. But what do we mean by sell?
1. Sell and hold cash
2. Sell, take profits, hold cash and wait for an opportunity to buy in lower
3. Sell and buy simultaneously (same day).

Option 1 may be valid as I approach retirement age and want to reduce risk by increasing cash.

Option 2 means I think I can time the market and want to wait for the market to drop further.

Option 3 is reallocation of equities: different markets, vehicles or managers.

Although the market could fall further I'm not interested in 1 or 2 - I assume I can't predict what's happening next. However, I am interested in 3 and in particular trying to manage risk around franking credits and active management.

One example is CIN, a LIC I purchased early on that hasn't had the greatest performance in growth (I am even) or yield (currently 3.9% fully franked but lower than others). So if I decide to sell CIN and buy VAS am I breaking the rules around never selling?

Some of you might be thinking "do whatever you want, it's your investment" but I want to be sure my logic is right.

Another interesting thing I've noticed is that LICs can move in the opposite direction of the index, eg VAS, STW, A200,XAO. I consider this a sort of arbitrage. If VAS goes down and a LIC goes up, then that's probably a good day to sell the LIC and buy the ETF. The converse is true if I wanted more in LICs.

Hope this makes sense. In the process of tasting some wines that has dulled my blade.

Not advice

 

I have sold a holding and bought another on occasions, I see no problem there. Frequent changes can be expensive because of the buy/sell cost and capital gains. For me there is no problem selling to improve my position.

 

I’ve generally only sold for two reasons in relatively more recent times:
1. To simplify
2. Tax loss harvesting although in part due to point 1 above.

Maybe as a retiree at some stage I will realise capital for a Ferrari / yacht / villa in Tuscany etc if senility gets the better of me.

Approaching retirement we didn’t sell, just increased cash accumulation.

My simple view is the less activity the better when it comes to investing. That is, fiddling is an investor’s worst enemy. Had I got it right in the first place the simplification mentioned previously could also have been avoided eliminating CGT and translation costs.

 

Not an easy one in many respects. My take is for what purpose are you investing, i.e. a steady, repeatable income stream or not?

If it is the first then to me it means buy XYZ at a price point which meets your criteria then go and do something else which is more productive at a personal level.

I've sold all my direct shareholdings and some LICs so I have less need (not that there was much) to be involved.

Capital gains or losses and whether you can profit from them isn't where I am at but it does seem to be the focus of society. Somehow it's as if your worth as an individual is measured by that - as if the assets could care less about you.

I should probably go and sit in a corner now as I am getting dangerously close to the metaphysical.

 

Sell and pay off nondeductible debt. Debt recycle back into more shares.

 

You think differently to many; this is the learning I got from Thornhill.

* Thornhill advocates industrial stocks because industry should be able to value add. Property may not perform quite as strongly as industrials.

* If the company is really returning a lot to shareholders they can't really be putting much into R&D and business improvement.

* Yield trap. Companies with a higher yield may not be growing as much as companies with a lower yield. The higher yield may mean the company has nothing new to invest in, so over the long run the stock market performance may be weak. The yield is only a snapshot in time.

Now here's an example. Say it's year 2000. Share A's share price is $5. It's a high dividend payer, 6% dividend and the share price grows 5% per year.

Share B's share price is also $5. It pays 2% yield but the share price grows 20% per year.

This is what you would see over time... (sidenote, the “Numbers” spreadsheets app on the iPad is horrible! So painful to use, for some stupid reason it tries to put my text into Chinese when I don’t have Chinese as a setting).

The point of this post to reconsider your automatic selling of the share if the yield is low. A lower yield can be a good thing over time. Please note, past performance does not indicate future performance by any means.

 

Yes, selling those LICs and adopting an index strategy is the only rational decision.

Approved

 

Thanks @Islay. One of the fundamental questions I have is "how can I be sure that I am improving my position if I can't predict the market?"

All signals may point to moving CIN into VAS, but then if CIN doubles in value, should I have buyer's remorse or do I just say 'I made the beat decision with the information available'?

 

Thanks for the detailed response @The Y-man.

I think I get the gist - you lock in profits and keep yield at target 6% by triggers to reallocate. Has this strategy worked for you in the long term? Have you ever had seller's remorse?

 

Thanks @Nodrog.

I try to follow the KISS principle for my level of Stupid.

Doesn't tax loss harvesting imply I actually have a capital gain from the sale of shares? Structuring the buying and selling to minimise the gain is a good idea.

The risk with Labor's franking policy is LICs will drop in price an amount equivalent to franking credits, unless that has already been partly priced in. I've done a few calcs looking at a few betting sites and the media and the chance of the ALP winning the House of Representatives and the Senate and then implementing the policy is currently around 50/50. It's a risk that can be mitigated by transferring into ETFs VAS, MVW, QOZ. Yield will fall which impacts FIRE date but c'est la vie.

 

Thanks @SatayKing.

You bring up a very poignant question, what is the purpose of the investment? As you have alluded it is indeed for an income stream. Can my tweaking gain enough benefit to offset the time I spend on thinking about it? A very difficult question.

 

Thanks @Terry_w. No non-deductible debt to worry about, thanks to some great advice on this forum.

 

Thanks @Gockie. Good points but I don't buy direct shares. I've followed Thornhill for a while now and believe in a lot of what he has to say. However, I feel that risks involved with LICs are increasing and reallocation to indexes may be better in the long term, for exactly the reasons you have stated.

 

Thanks @The Falcon. Does that mean my membership to the dark side has been accepted? I'm in.

Time to celebrate with a Barossa red...or three

 

Yes, but as I said it was a result of simplification. Or if one knows they’re going to have to realise a capital gain in the future for a known expense (not speculation) then by harvesting tax losses the tax on the eventual gain can be minimised / offset.

Again you’re restructuring as protection against legislative risk NOT SPECULATING purely for a capital gain. Have done this myself whilst in the process of simplication of the portfolio. Killed two birds with the one stone.

But once you get down to the level of arbitrage buying / selling it’s becoming more of a trading strategy. Then like a drug the desire for other trading strategies may potentially take hold most likely resulting in a depressing outcome.

 

You made the best decision at the time. But also about what you bought the shares for in the first place: for growth then it often takes time for the share to appreciate, for income then has the income increases while you hold it?

I am planning to build up enough cash for 3 years worth of expenses so that I don’t need to sell any shares even if the markets tank. The money will be used as ‘cash cushion’ to top up the dividends. With this approach, having dividend yield of 6% or more would help and then the capital growth is the cream on top.

I sold one direct share and bought into LIC last year.

 

Yes we should do that

 

Any excuse.

 

Today's Sunday, that ends in'y', let's drink.

I only drink on days ending in 'y'.