DO NOT DITCH THE DOGS
If a particular investment is on the losing side, most traders tend to sell it and invest the proceeds on something else. Sounds like a great plan, but is that the best option? You may want to consider the following pointers before letting the "dogs" go.
Look at the investment thoroughly. Determine whether it is really a dog or a firm investment experiencing a downfall at the moment. If your investment portfolio is well diversified and you employ a solid asset allocation strategy, chances are it has numerous investments. Some of those deliver better performances, while others are below the benchmark. Not every investment can topple the benchmark, but it does not mean low performers are bad investments.
View the holdings from a strategic perspective. If the stocks are not doing well when the stock market is down, you should not feel anxious. A decline in a quarter or a year does not indicate it is time to sell the stock, especially if you bought that for its long-term growth potential. Remember that the value of your investments won’t always increase. Seasoned traders, instead of just buying and selling stocks, pick their investments carefully.
In some cases, a dog is truly a dog. Take a close look at the scenario to find out if the stock should be sold. Review the company’s financial situation and balance sheet, as well as its ranking against competitors in the industry. If your analysis unveils a firm which has lost its appeal and really a dog, you can pull the plug, sell the stock, and invest in another stock.
Dogs of the Dow
The dogs of the Dow is a well-known investing strategy encompassing 10 companies enlisted in the Dow Jones Industrial Average with the highest dividend yield at the start of the year. Created in 1972, the portfolio should be adjusted annually to incorporate any changes that surfaced to these companies within a calendar year.
In essence, you are purchasing the least expensive stocks in the DJIA, corporations that are temporarily out of favor with the market, but still relatively successful. By using this strategy, you are hoping the true value of these shares will be realized and seize a tidy profit at the end of the year by selling those and buying new underperforming stocks.
So, the next time your investment becomes a dog, do not ditch the stock right away. There are some instances stocks are dwindling, but not for long. Do your own research before you decide whether to dump the dogs or not.
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