When Should I Sell My Stocks?

TL;DR

Consider selling a stock when weakening company fundamentals or a growing risk of a dividend cut makes it a liability rather than a reliable source of passive income. The speaker evaluates earnings per share, free cash flow, payout ratio, sales growth, return on equity, dividend yield, dividend safety, and payment history while remaining a long-term investor overall. Read on for the specific checks behind that decision.

Transcript

it's been a bittersweet journey getting here and it seems that when it rains it really does pour if you watch my videos and you're inspired about personal finance and money and dividends and Robin Hood today I apologize to you because I can no longer play the long game today something has to happen that hasn't happened since before I started invest... Read More

Key Insights

• 🥺 Stricter loan requirements in the housing market may lead to difficulties in buying a house, further worsening the housing crisis.
• 👯 The economy is predicted to experience significant declines, with a large number of people filing for unemployment.
• 🥶 Factors such as EPS, free cash flow, and dividend safety score are important to consider when deciding to sell stocks.
• 🌸 Warren Buffett's cardinal rules of investing, such as avoiding losses, may not always be feasible, but long-term investing remains important.
• 😀 Various stocks, such as REITs, retail companies, and oil companies, are facing challenges and may be at risk of dividend cuts.
• 🌸 Tax loss harvesting can be utilized to offset losses and potentially reduce taxable income.
• 🥳 Missing out on the best trading days in the stock market can have a significant impact on long-term profitability.

Questions & Answers

Q: When should I sell my stocks?

Consider selling when a company’s fundamentals deteriorate and it faces a greater risk of cutting or eliminating its dividend. The speaker’s goal is to act before a dividend cut causes further losses in both the stock and its passive income.

Q: What financial metrics should I check before selling a stock?

The speaker checks earnings per share, free cash flow, earnings payout ratio, sales growth, return on equity, and dividend yield. He also reviews the dividend safety score and the company’s history and commitment to paying shareholders.

Q: Why can a dividend cut be a reason to sell?

Dividends give the speaker confidence to invest because he intends to use that passive income in retirement. He says stock prices tend to fall hard after dividend cuts, so holding the stock may threaten both capital and income.

Q: Why was Chatham Lodging Trust considered for sale?

Chatham Lodging Trust is a REIT that owns hotels, and the speaker says those properties had no guests because of the situation at the time. He therefore viewed the company as risky and preferred to move his money somewhere safer.

Q: Why are REIT dividend obligations important when evaluating risk?

The speaker says REITs are required by law to return most of the money they make to shareholders. He argues that this obligation becomes particularly difficult when the underlying properties, such as hotels, are producing less business.

Q: Does selling some stocks mean abandoning long-term investing?

No. The speaker says he will remain a long-term investor because he cannot predict the future, even while selling companies that are becoming liabilities.

Q: How could stricter lending requirements affect homebuyers?

The speaker says stricter credit-score and down-payment requirements would exclude many borrowers. If other lenders followed, he argues that buying a house could remain difficult even if home prices and interest rates fell.

Q: Which stock brokers does the speaker mention?

The speaker says he still uses Robinhood because he is a long-term dividend investor who does not trade options or day trade. For investors seeking those features, he mentions M1 Finance, Webull, Fidelity, Charles Schwab, and Vanguard as alternatives.

Summary & Key Takeaways

• The speaker apologizes for not being able to play the long game in investing and discusses the importance of dividends in generating passive income.

• They explain the current housing crisis due to stricter loan requirements and predict a significant decline in the economy and increase in unemployment.

• The speaker provides tips on what to consider when selling stocks, including metrics like earnings per share, free cash flow, and dividend yield.