Wednesday 18 May 2016

A Lucky Exit (Portfolio Sale)


I have in the past extolled the virtue of turning your back when Mr Market gets depressed and things go 'pear-shaped'. This is in order to help to counteract our instinctive 'monkey brain' reaction to pull out our bananas and run away.

But it is possible to take this concept too far, as I have learnt today. I missed a bit of news - and that's cost me some money, fortunately not too much.

Because I have been avoiding looking at the market too much recently, I haven't updated my DIY Income Investor portfolio spreadsheet for a while. Even though most of the prices update automatically, I still need to refresh dividend forecasts and some prices manually - as well as catch up on any Regulatory News I may have missed.

So I got to it today - and, not surprisingly, most of the information had not changed very much. With one exception...

High-yield dividend shares are a bit unstable, it has to be said. The yield is high usually because the market has concerns about sustainability of the payments, due to some perceived threat to the business model. (The simple idea underlying the DIY Income Investor approach is that the market tends to be too pessimistic.) However, when Mr Market's worst fears are realised there is a 'double whammy' for income investors: income is reduced and the share price tumbles.

So, imagine my embarrassment when I realised that BLT Billiton had cut its dividend. Now, this was clearly big news and happened way back in February, so I have no excuse other than being busy with other things. After all, I only bought them in December 2015!

I have three 'rules' for selling:
  • sell for a profit when the capital gain reaches 5 times the annual income (that hasn't happened for a while)
  • 'no hope' sale (at a loss) if the business model is irreparably damaged and there is little hope of a recovery
  • 'restructuring' sale (at a profit or at least cost price) when the yield has dropped below around 3% 
Otherwise I tend to hold on to problem securities showing a capital loss (as long as they are generating an income) in the hope of a price recovery (so that they can be sold later).

The above is not perfect but, behaviourally, it is an approach that I can live with.

Fortunately my BLT holdings were still showing a small capital gain so it was relatively easy (in a psychic sense) to sell. But I'm kicking myself for not selling earlier.

[Sale price: £8.36]

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. I've been investing for about thirty years, and in my experience "being busy with other things" is the curse of the amateur investor.

  2. Hi - I know you generally only invest in income producing shares etc...

    but have you seen Highland Natural Resources (HNR)

    The share price has jumped from 14.5p to 75p in under a month and I have TRIPLED my investment (Happy Days)

    Now not sure whether to sell out, top slice or hold.

    I have to add, all of my other investments are in 'boring' dividend paying shares!

    1. Lucky you! Have you discovered why? Takeover? All the news may be in the price. Your decision, though!

      By the way, there's no harm in a little bit of speculation in your portfolio - as you say, income investing can get a little boring (watching the money roll in...)