Guest Post: What If You Could Not Sell Your Stocks?

This is a guest post written by Dan Mac. Dan is an investor and writes about his favorite strategy at Dividend Growth Stock Investing.
Last week the New York Stock Exchange was forced to shut down due to Superstorm Sandy. If you wanted to buy or sell US stocks during this time you would not be able to. While the market was only closed for two days, it got me thinking about how comfortable I would be with my stock portfolio if the market ever closed for an extended period of time and I were unable to sell any of my holdings. Usually the New York Stock exchange tries to avoid closures and they do a very good job of staying open. The longest closure in history was in 1914 when you would not have been able to trade stocks for 137 days. The market was closed to stock trading from July 31, 1914 through December 15, 1914 due to the outbreak of World War I.

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.
Thanks for reading.
Photo Credit: FreeDigitalPhotos.net

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10 Comments

  1. I would have a problem if internet everywhere was down (nuclear e.m.p) and there was no way to retrieve any information about any accounts.

    Another key reason to diversify.

  2. Looks like a very good advice ! Although personally I watch very closely stocks that breach for one week or more their 52 Weeks-Low. This does not mean that I will sell them, but probably reduce.

  3. Aspenhawk- Glad you like the article! I’d be careful selling just because a stock is at a low. My advice would be to try and figure out why it is hitting a low. If the company is still doing everything right, or maybe if there is a minor setback that they will recover from within a half year or a year, then I’d almost recommend buying more at the discount. However, if something has changed with the company and that is why price is heading south then yes I would consider a sell. Don’t sell though just because the market is acting irrationally.

  4. Hello DM,

    Are you buying anything on recent pull back in the market? I am thinking of increasing my position in Coca Cola (KO). Please share your thoughts or any recent purchase.

  5. If your stock is down to a 52 week low, before you sell at least look and see how it is doing compared to other stocks in the same sector…if KO is down for example, but PEP is kicking butt, you may have a serious problem with KO…if both stocks are down, then its an industry or economic problem more than likely unrelated to the individual companies…you should always know who the chief competition is for the companies you own, and compare their performance to that competition.

  6. As for the artcile, good points…you never know what could happen, so you should be prepared for market closures…I think if there is an extended closure, that implies serious problems like 9/11, so you or the country may have more serious problems to worry about…I think a bigger problem to worry about is the market closing to the small fish, but the big fish still being able to cut deals behind closed doors, thereby screwing over the small guys when the markets finally do reopen

  7. Anonymous,

    I actually invested over $4k worth of fresh capital over the last couple days, seeing as how the recent pullback was a great opportunity. I’ll be discussing these moves within the next couple days. Stay tuned!

    I didn’t add to KO, but it was one of the candidates this month. I love the company, but simply found other opportunities more enticing. I do plan to add to KO very soon, however.

    Best wishes.

  8. Always keep in the back of your mind, that if the stock market does drop to $0, don’t worry. All Currency throughout the World will be worth $0. Then only your set skills and mental knowledge will be your best investments.

    So when living off of Investment incomes, keep sharping your skills, just in case 😉

  9. Great article!

    The market is always open all the time.Best method is to check the company’s performance.

  10. It is what every investor think of when there is a situation of not being able to sell stock. This post is great help to be aware of what to do in such situation.

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