Would You Be Comfortable if You Could Not Sell Your Stocks?
The most successful type of investing strategy involves buying quality companies and holding for the long term. When I purchase companies I make sure they are companies I believe will be around forever and I hopefully will never have to sell them. In fact, one of my criteria for deciding a stock is a buy is asking myself how I would feel if the stock market were to close tomorrow and not open back up for 10 years. Would I be perfectly comfortable owning each company in my portfolio knowing I could not sell it in the short term? The answer to this question should always be yes.
Take a good look at your portfolio. Do you own companies that make you feel good? Are these companies the leaders in their industry? Are they increasing their net income year after year while at the same time paying a larger amount of dividend income to shareholders? You should have a portfolio of stocks that you could feel 100% comfortable with owning for the next 20 years even if you could not sell. This portfolio should consist of 15 to 20 different companies. With this many companies, even if one or two fails, your overall portfolio should still perform fairly well. You will still collect increasing dividends every year and as long as the companies are doing their job increasing profits each year then the market price should go up over the long term.
Your Goal as a Dividend Growth Stock Investor
As a dividend growth investor, you should be looking to set up a portfolio that pays you increasing dividend income year after year. You should be putting together an investment portfolio of companies that are industry leaders with a history of increasing net income and dividend payments. These companies should allow you to sleep well at night knowing that they are making you money with a lower amount of risk than unproven companies. If for some reason you were unable to sell your shares of stock, these companies should make you comfortable knowing they are still chugging away making lots of money and paying you dividends along the way.
Try to put together a well-diversified portfolio of dividend growth stocks that you will be confident owning well into the future. Purchase companies like Coke, McDonald’s, Wal-Mart, Johnson & Johnson, Procter & Gamble, Aflac, Walgreen’s and many others. These companies have been around for many years. They have increased net income for many years and in the process have been paying out higher and higher dividends to shareholders. Investors in these companies are doing better than most people that try to strike it rich in the stock market. Almost always, the buy and hold investor of solid companies will outperform the short-term trader who lets the market dictate his buy and sell decisions.
Be a Long Term Investor
The bottom line is that you should be a long-term investor. Don’t let fluctuations in market price worry you into selling your companies when you should not be. The stock market is an auction and it is open all the time. You can constantly get a quote for how much the market thinks your stock is currently worth. Sometimes the market is going to undervalue your stocks and sometimes it will overvalue them. This means that the stocks in your portfolio may experience swings of 20, 30, 40, even 50% or more. Don’t let these swings scare you into selling. Let your companies do they are supposed to do. Let your companies make more and more income and pay you more and more dividends. If they continue to do this over time and you own your stock for the long term then you will do very well as an investor. If they fail at their job of making more and more money, then and only then, you should decide it is time to sell and move on. Make your selling decisions based on how the company is performing, not the short-term volatility of the stock market.
Aiming to become financially independent by 40 years old by living frugally and investing in dividend growth stocks, valuing time and purpose over money.
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