Selling Stock Winners to Become More Diversified

Just yesterday I wrote about receiving a welcomed Johnson & Johnson dividend payment.

Well today, I decided to sell off some of that position, and a couple other winners, to free up some cash to diversify.

Over the last few months, as I began building up this small portfolio of dividend stocks, I realized that I was not properly diversifying.

My strategy was to save as much cash as possible and then plop it down on a single position in as many shares as I could buy.

Instead, I probably should have been buying smaller lots in more companies in different sectors to maintain proper diversification.

The other advantage of buying in smaller lots is that I can take advantage of movements in share price.

Averaging Down

As a for instance, I bought 250 shares of Intel (INTC) some time ago for around $19.90 a share. Within a week, the share price was down to $19.50 (and I think its intraday price hovered even lower).

Had a only bought 125 shares initially, I could have come back in and bought the other half much cheaper. Investors refer to this as “averaging down,” because it effectively lowers my average cost per share.

Of course, there is risk in the other direction as well.

If Intel had taken off, as it has the last several days, I would have been kicking myself for not buying all 250 shares when it was cheaper. But that’s investing – you win some and you lose some.

For now, I’m content to have the proceeds of those sales in cash until the market pulls back a little, which I think it is due for again soon.

One day of bad news out of Europe and I could pick up some new shares in other companies at 2-3% discounts off what they are going for now.

I’m currently eyeing investments in the Telecom, Utilities, and Consumer Product sectors to round out my current holdings representing Tech, Medical and Oil. I’ll report back when I initiate a new position.

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Disclaimer: Long INTC

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