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Investing in Stocks: To Hold or Sell Yesterday's Winner?

By Glenn Dahlke 

Here's the issue. You bought a stock umpteen years ago that is now worth 10 times what you paid for it, but in the last 5 years its trading price seems to be super glued to the wall. You have always been a proponent of "buy and hold" and this stock seems to bear out the wisdom of that strategy. But now you're not sure - maybe it is time to move on to something else.

The question you keep asking yourself is the same question thousands have asked before - when do I know this powerhouse has run out of gas and its time to sell?

Here's some help with both sides of the coin:

1. "Buy and Hold" doesn�t mean, "until death do we part." Every investment strategy has three basic components: the buy, the hold, and the sell. Obviously, your buy and hold components worked out well. The stock was a good pick and has significantly increased in value despite what was probably some volatility along the way. It looks like you've gotten the "growth" phase out of the security. With the lackluster performance of recent years, the stock may have matured and simply won't repeat its past performance. As Paul Simon might say, "Time to sell, Nell."

2. Is there a dividend yield high enough to support retaining the security? Figure out your dividend yield based on your original purchase price. If its 5% or greater, that's not a bad annual return for a quality security with some future appreciation potential. A company that has a record of dividend increases is more reason not to sell.

3. You do know that if the trading price doesn't move upward, the bragging rights of your average annual return diminishes. If you're up 200% on a stock over 5 years, bragging about an average 40% average annual return makes for a good story . If you're still up 200% in 10 years, in all probability someone has a better story.

4. Anything overheated needs a cooling off period. After a lengthy run up, the closing weekly price of a stock will sometimes be within a few percentage points on below average volume. According to technical analysis, if this continues for a period of time, the stock could simply be forming a new base price. With an increase in volume, the stock may "break out" and continue to rise. In the case where the stock price falls (especially in latter stage bases), a danger sign exists since this could mean institutional money has moved away from the stock.

5. No matter how much you want to, you can�t change company change. Change in company fundamentals, management, and business strategy can all affect the price of a stock. Sometimes it's change for the better, sometimes not. You need to realize that nothing you can do will alter this change. Sentimentality doesn't have a lot of room in the stock market. If the fundamentals aren't what they used to be, then that's the way it is. Look at yourself in the mirror.

6. Tell the truth - is this really all about the capital gains tax? We all like to play psychological games with ourselves, so don't be ashamed to admit it. When you add up your net worth on paper, it looks higher before tax than after tax, right? Unless you're planning to die with all your paper gains to receive the "step up" in basis, recognize the difference between a game and reality.

If you're on the fence on whether to hold or sell, take the time to explore your options and decide your best course. Indecision will get you nowhere.

Glenn ("Chip") Dahlke, a senior contributor to the Living Trust Network, has 28 years in the investment business.

He is a Registered Representative of Linsco/Private Ledger and a principal with Dahlke Financial Group. He is licensed to transact securities with persons who are residents of the following states: CA. CT, FL, GA, IL. MA, MD. ME, MI. NC, NH, NJ, NY.OR, PA, RI, VA, VT, WY.

If you have any questions or comments, Chip would love to hear from you. You may contact him at You may also contact him at the Living Trust Network. Its web site is

Copyright 2006. Living Trust Network, LLC. All Rights Reserved

Article Source: - Glenn_Dahlke

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