The 'Reverse Bubble' (Portfolio Sale)

Source

One of our human investing behavioural biases is the fear that a paper gain we have made on an investment will suddenly be snatched away. This bias leads us to sell winners 'too soon'. Of course, the difficulty is identifying 'too soon' - I haven't yet found anyone putting forward a coherent strategy for when to sell, other than 'not too soon'.

My own observation is that the high-yield securities I aim to buy tend to behave a little differently to the run-of-the-mill 'value' shares. Not all high-yield is 'value', of course - the skill lies in sorting out the fatally flawed from the temporarily disabled. A high yield opportunity often exists primarily because of a perception of risk that is subsequently proved to be overly pessimistic. In other words, it is like a 'reverse bubble': once it pops, the price returns to 'normal' levels.

On Doubling Up (Portfolio Buy)



Source

 

The dividend shares I buy. as well as being 'high yield' are usually 'value' shares, in the sense that their price compares favourably with their earnings and book value - and they don't have too much debt. The market will be worried about something else about the company - hence the high yield.

It may be hubris, but when one of my 'chosen ones' falls in value, and this is for no apparent good reason, I often consider 'doubling up' - buying more on the price drop in the hope that the price will quickly rise again. This is obviously putting myself at odds with Mr Market (but then that's what I do a lot) - but it seems to work, more often than not.

So, when should you think about doubling up?

More ETFs (Portfolio Buys)

With an average yield of (now) 6%, the DIY Income Investor portfolio is throwing off cash at a satisfying rate. Add to this the sale of both profitable and unprofitable investments and the portfolio hit a substantial cash glut over the last few weeks.

I don't like holding cash in an investment account, as it just sits there, lazing around figuratively watching the Footie or Wimbledon, rather than earning its keep, like it's supposed to. Personally, I can't wait until I can access Ratesetter's peer-to-peer lending rates from inside an ISA (now the New ISA or NISA) or SIPP.

Until then I need to keep looking for better uses for the cash - and the long-term strategy says 'buy ETFs when the yields are attractive'.