The past few days we've seen a correction in the market, and I've once again been reminded that I have some quite risky stocks in my portfolio. In my dividend report of September I wrote that I was thinking about letting some of them go. And now I have.
Without any rational explanation, I was waiting until the ex-date to sell the stocks in question. Which were the same for all three, namely October the 11th. And what happened that date? The dow tumbled 2.1%.
So my timing was once again not perfect. But the deal is done, and the table below lists all the relevant data for the three stocks in question.
|Cost price||Dividends received||Sell price||Sum|
I consider my self lucky walking away from these trades with a net profit of $729 with a holding period of approximately one year. That implies an annual return of 11.5%, but it's all pure luck. I had no idea what these instruments actually contained at the time of investment, and was blinded by the high dividend yield.
The reason for my change of heart towards these three stocks is partly because I was reminded of a Warren Buffet quote:
Never invest in a business you cannot understand.
And the truth is that I do not understand how these instruments really work. So why should I hold them? I do not want to gamble with my retirement fund. I have no issue with taking some risk in the market for the pursuit of higher long term returns, but I'm not comfortable with level of risk in these instruments.
What I did understand about these instruments is that they are leveraged. This attribute has surely helped my investment return, but as we're seing rising interest rates I do expect the yields to shrink due to higher costs of debt.
The funds generated by these trades will for now remain in cash. I'm having a hard time finding good investment opportunities in this market climate, and at the same time would like to reduce my leverage ratio. We'll see what the rest on the month brings, but for now I'm content with my adjusted risk level.