It is getting close to the time of year for "spring cleaning," which used to be a "must" in many homes. You'd go through the entire house and clean up everything -- extra scrubbing, especially around the baseboards and in the corners, in the attic, cleaning out cupboards and garages -- until, when you were finished, the house almost looked brand new! Of course, spring cleaning also meant throwing out the things you didn't need anymore, things that were just gathering dust and taking up much-needed storage space. Wow, you really felt good when you were done.
Now I know for some people, throwing anything out is impossible. Some of us are pack rats (maybe someday we'll use that old piece of material, certain tool or that "wha-cha-ma-call-it"). But there comes a time when we need to face our mess and clean it up. The same principle applies to our portfolios.
Step Up, Long-Term Investors! It's time to think about "spring cleaning" our stocks, something we should do yearly, at the minimum. Now those of you who have read my columns know that I'm a long-term, buy-and-hold type of investor. I don't go in and out of stocks, and when I sell, it has to be for a good reason. But, even with a long-term portfolio, things can go wrong!
I actually sold four stocks last year after cleaning out my portfolio -- three were utilities (in DRIPs) that had been bought out and their new owners either reduced or eliminated the dividend (not to mention these stocks were being taken in a different direction than when I bought them). The fourth stock was a result of a spin-off and I kept it around for three years to see what direction it might go. It was stagnant and didn't grow even in the strong bull market that just passed; a stock that didn't seem to offer good future growth. So I sold it as well.
Sweep Up Small Caps Before I buy any stock, I check it out as thoroughly as possible. With the tools available today, especially on the Internet, it's easy to find good information. When I buy, I want quality, generally large or mid-caps that have a good future. I own several small caps (a small portion of my overall portfolio), but never buy penny stocks; on the whole, most penny stocks disappear quickly. Also, it is very difficult to find information on penny stocks - they usually don't have shareholder meetings and don't issue annual reports. And, being listed on the pink sheets -- but not on the big board -- information is hard to come by. With their very light volume, one or two large buy or sell orders can make these stocks very volatile. Think about getting rid of the losers that are just taking up space in your portfolio.
Love Stinks Have you fallen in love with a stock that you're tempted to keep forever, even though you know it has a lousy business model and its earnings have been poor for several quarters? Unless you have many years to hold the stock and don't need the money, consider selling it and putting your money in a better place.
More is Not More Some of you might have too many stocks in your portfolio. If you are just starting out, you shouldn't have more than seven to ten stocks (max) so you are able to keep track of them as thoroughly as you need to. Now, I'm not suggesting that you buy and sell a lot of stocks (think of the tax consequences). Rather, ask yourself some questions before making a stock purchase in the first place:
* Where did you hear about the stock: from a friend, a tip from a neighbor, a broker? * Do you know what you own and why you bought it in the first place? * What do you really know about the company? What is its business? * Is the product or service something that would hold your interest? * Is it something that will be around for at least the next ten years? * Are your stocks small, medium or large cap? * What are their earnings for the past few quarters?
Bottom Line We all make mistakes and some stocks run their course. We don't need to hold on to each stock in our portfolio forever, waiting for their prices to climb. So if your portfolio has cobwebs, get busy. Spring is just around the corner!