|Reaching for low-hanging fruit|
For a variety of lurid crimes (which differ according to the sources) Tantalus was punished by temptation without satisfaction. He was made to stand in a pool of water beneath a fruit tree with low branches. Whenever he reached for the fruit, the branches raised his intended meal from his grasp. Whenever he bent down to get a drink, the water receded before he could get any. Finally, over his head towered a threatening stone like the one that Sisyphus (my own particular favourite) has as his own punishment to eternally roll up a hill.
I'm hoping that you are starting to see the parallels with investing...
For me, as a DIY Income Investor, the biggest temptation is the urge to sell a winner. I don't have a particular problem holding onto losers, provided that I think they have some reasonable chance of recovery - usually they will have some redeeming qualities. But winners - they are like the low-hanging fruit that tempted Tantalus: wait too long and they are snatched away.
And the income (from dividends or bond returns) are like the water that Tantalus would bend down to drink from - too often suddenly seeping away.
Finally, there is the all-too-present danger of the double-whammy: the giant rock that falls on your head when the dividend is cut and the share price falls.
So it is - unfortunately for me - with National Grid (LSE:NG). It is hitting new highs daily, although these are still below the all-time high set in June 2013. Yet the dividend cover is slender indeed - and with all the bad press surrounding the power companies, it is only a matter of time that public opinion turns against the owners of the network infrastructure too.
I should have sold last year and saved myself a lot of tantalisation. Still, I'm up 40% since buying in June 2011 and the portfolio has benefited from the flow of income from the dividends.
And if this were the only one, it would not be so bad. But there are others, oh yes: Carillion (LSE:CLLN) and Balfour Beatty (LSE:BBY) are both showing plump valuations.
Regular readers will know that my own 'sell' indicator is based on the ratio of capital increase divided by current annual income: I think about selling when the gain is greater than 5-years'-worth of income (and when the yield is significantly lower than the portfolio average). This helps a lot to reduce the temptation to sell - but it's not the complete answer because all of the above have hit that target.
Poor Tantalus, I know how he felt...
Update 20/2/14: And down again goes the market - and out of reach go the low-hanging fruit!
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.