We’ve talked before about how we don’t believe in market timing and that one should accumulate shares using dollar cost averaging (DCS) in order to remove emotion from the equation. In fact, the entire premise of the Quantigence methodology is around objectivity and rules. So why on earth would we be selling any of our stocks? Isn’t our timelines indefinite for all our positions? Our timeline is indefinite, and we’re selling for reasons that may not be so obvious.
Firstly, we’re really getting nervous. There’s a circus of a presidential election happening, there’s a migrant crisis in Europe, there are more terror attacks happening than ever (or at least being talked about in the media), and perhaps the most compelling fact is that the markets keep hitting all-time highs in the face of a looming interest rate increase. While we have a 57 month timeline to become fully invested in our 30-stock Quantigence portfolio, we’re still getting the feeling that there are going to be bargains to be had if we just wait and we need to sit on as much cash as possible. So how can we get more cash aside from increasing our savings rate?
Firstly, we’ve really toned back our purchases, even going so far as to stop making our manual investments in a number of stocks like Dover and Chubb that we’re just starting to build positions in. All our automated investments continue as usual, but the manual ones we’re holding back on a bit. Secondly, we’re thinking that if we just sell off a few stocks where we’re fully invested in, and then put them on a 5-year buying schedule, we’ll rebuild those positions eventually. The worse thing that can happen is that we miss out on their dividends for a while and maybe DCA into them over time at a more expensive price. So what stocks should we sell?
Well firstly, we want to minimize turnover as much as possible so we just are looking at selling 3 stocks that are fully (or nearly) vested in order to get the most bang for our selling buck. One stock that immediately caught our eye was Realty Income (O) because it is our biggest position at the moment. In fact, 18.6% of our portfolio is in REITs at the moment which is far higher than our fully vested target of around 10%. Why so high? One of the reasons is because we began buying REITs about 5 years ago and are almost fully invested across the board now. In fact, our target position size is $13,333 and our position in O is over $15,000. With O up over +43% in the past year and nearing a 10-year low in yield, it doesn’t sound like the worst time to sell.
With 222 shares in our account, we sold 200 and will immediately set up a 57-month plan to accumulate our position again by buying $210 a month of shares. Worst case scenario is that we miss out on some yield over time and have to accumulate our shares at a higher price than what we sold them at. In that case, it would mean that REITs performed well and we still have strong REIT exposure in our portfolio with NNN and FRT. Best case scenario would be that interest rates increase, REITs get hammered, and we buy back into O at a cheaper price. It just makes sense.
In our next article we’ll talk about the other stocks we decided to sell in our quest to free up as much cash as possible. By selling these 3 stocks, we’ll free up almost $36,000 in cash which will be on the sidelines. Waiting.