Tuesday 21 January 2014

Drug Rehab (Portfolio Sale)

Why do we do the things that we do? It's a perennial question that behavioural psychologists have struggled with.

I find this most striking in the shops: mostly I browse and don't buy. But once I've bought something, I'm likely to buy something else.

Investing can be like that too. For example, today I sold something that I probably shouldn't have sold - but I feel better now that I've done it and I can't wait to sell something else.

Regular readers will know that, when I sell, it is usually because I am cashing in a capital gain of 5-years-worth of income (in this case, dividends). I have this sell rule to stop me constantly agonising about whether a security value is going up or down - I hold it until it goes up that much, then sell it (but it's not always that straightforward). The sale gives me psychic relief - but it comes with a big potential downside, as I am 'selling winners', the supposed big investment 'no-no'.

Today's sale was AstraZeneca (LSE:AZN), which spiked up this morning, fell back then pushed up again. My sale realised a capital gain of 29% since I bought it in June 2011. The side-effects of this action may result in an upset stomach, when the price continues to shoot up - particularly after the annual figures and strategy update on 6th February, when the detail of the supposedly good news on the product pipeline will be revealed.

Now, if you were looking at AZN afresh, it would look quite attractive: yield over 4%, dividend cover 2.5, good news, etc. But let's not forget AZN froze the dividend just last year. so for an income investor, it means that they are to be treated with caution: perhaps they were being prudent or perhaps shareholder returns are not uppermost in the mind of the management?

In any case, I'm off those drugs for now.

[Sale price: £39.5019]

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. Talking of selling when things are going well, I've just noticed the price of Avon Rubber and I'm tempted to sell...

  2. Dear Sir,

    Love your blog, I follow your strategy very closely although currently have no fixed income assets. Where I differ is that I buy & hold shares. Still trying to get over buying Barrat Homes at £1.00, selling at £1.30 ... now they are at £3.70!

    Love Stephen Blands phrase on HYP: practice strategic ignorance after buying.

    The other problem is which other high quality asset would you buy after selling. Anyway, thanks for your all your articles, e-book over the years.

    Reg, Jon

  3. Each of us traders, have their own psychological problems to struggle with. For me, it's a no brainer to run winners, this strategy has worked well in combination with investing for income in dividend growth areas and high yield fixed income. But rather than pat myself too much on the back, I do have a big problem .... I can't bring myself to sell a dog. I am a big sucker for thinking of sunk costs as investment, and can't shake myself. At least it shows me that my ability to pick low yield high growth companies sucks, as my dogs are at the speculative end of my picks. But it's hard to give up. I should just cash in, and take those little critters to the (literal) pound.