I decided to sell some shares last month. Here’s a summary of my April stock sales.
As part of my general simplification strategy in my portfolio, I aim to hold around 10% of the portfolio in individual stocks. I also favor holding fewer individual stocks for easier management. I can rely on the 428 companies in VHDYX and 931 companies in VIHAX to provide diversification since those two funds make up the bulk of my portfolio.
After I reduced the target allocation of individual stocks down to 10% a couple of years ago, I’m still slightly above that with around 13% in my portfolio. Since the investments are in taxable there’s no point to immediately rebalance since selling incurs capital gains. So I usually rebalance by adding to the other asset classes instead of selling stocks.
But from time to time, I may sell some individual stocks – either to tax loss harvest if they’re down, or just to close out a position if I no longer see that company as a core holding. And that’s what happened in April.
Sold: T Rowe Price (TROW)
I sold 22.1727 shares of TROW on April 3rd for a total of $1,506.34 after commission. The cost basis was $1739.35 resulting in a capital loss of $233.01.
Since I’ve owned TROW shares from 2013, they’ve paid a total of $112.23 in dividends which was invested in other companies. So the real ‘loss’ in this investment has been $120.78, ignoring taxes.
My reasons for selling
- Opportunity for tax loss harvesting since I don’t plan on re-purchasing this stock
- I personally wouldn’t use the company’s products as Fidelity and Vanguard have cheaper funds. Even their cheapest total stock market index (POMIX) has a 0.3% fee which is over seven times more expensive than Vanguard’s VTSAX fund at 0.04%.
- They’re late to the robo-advisor party and not as competitive. Although TROW’s ActivePlus management service doesn’t charge a separate fee, investors pay for that through the higher fund fees. So you’d pay 0.81% for an actively managed large cap fund (TRULX) instead of ~0.34% in Vanguard’s Personal Advisor Services. Over a thirty year investing period this is a significant lag to overcome.
- Dividend yield at 3% is about the same as VHDYX. The current year’s dividend growth has been quite low at around 5%, and the previous year was lower still at 3.8%.
On the plus side, the company has no debt and operates a business with low capital needs. The 3% yield is reasonable and the payout ratio is good too at around 42% with room for growth. Finviz suggests a 9.4% EPS growth over the next 5 years with Morningstar at 8.3%.
I admit there’s an emotional element to this sale as I’m not fully aligned with the company’s investment products. I didn’t worry about this when I bought the stock in 2014 & 2015. However, I do think that they have their work cut out to defend against the newer disruptive companies such as Betterment and the cheaper full-service companies such as Fidelity and Vanguard.
Sold: Chubb (CB)
I sold 2.3265 shares of CB on April 3rd for a total of $310.31. The cost basis was $258.43 resulting in capital gains of $51.88. However I originally invested $350 in the pre-takeover version of Chubb buying 3.8653 shares. These were then converted into 2.3265 shares of the new CB in January 2016 when it was bought by ACE.
This was a very small position left over from my old sharebuilder program and it’s a tiny percentage of the overall portfolio.
My reasons for selling
- It was a very small position and I didn’t see myself wanting to buy more.
- The dividend yield was low at 2% and I think the sale proceeds would be better spent in VHDYX for higher income.
- The capital gains were modest and offset by the loses from selling TROW.
On the plus side, I still feel it’s a pretty solid company with a low payout ratio and room to grow its dividend. CB has a lower 5-year growth projection of 4.6% from Finviz and a more optimistic one of 12% from Morningstar.
With these sales, I’m down to 30 individual stocks in my portfolio for a total of around $43,500. This is 12% of the total portfolio. The stocks sold were a very small percentage of the total value and won’t have much impact. The proceeds were invested into VHDYX.
Quote of the Day
It is not the mountain we conquer but ourselves.