wrote:
> Why has the risk greatly increased for long term
> holders because of higher prices"? Our buy price has
> not changed. The increased market price is "just on
> paper". The initial yield on our investment has not
> changed, unless there was a change in the dividend.
> 3. ...I perceive the increased value of the units
> as "advance dividends",
> meaning that the market has decided to pay me several
> years of future revenue immediately.
NHY answered this clearly already but that's not going to stop me from
piling on, though I'll do it with a specific example... assuming, of
course, it gets past the censors...
Wayne, your point number 3 seems to conflict with part of your point
number one-- First you say, in #1 "...Our buy price has not changed.
The increased market price is "just on paper"."
Then you say in #3 "...I perceive the increased value of the units
as "advance dividends", meaning that the market has decided to pay me
several years of future revenue immediately."
If the increased market price is "just on paper," how can it also be
"advance dividends"?
As NHY explained, every day you don't sell a stock it's a defacto
decision not to sell. While at first it may seem daunting to make
buy/sell decisions daily on stocks you've held for income, it's really
not if you have a simple spreadsheet to display it automatically. In
addition to the standard loss/gain information, my investment
spreadsheets tell me at a glance where I stand income-wise too. For
example, I have a stock I bought in a taxable account on 4/17/03 at
$13.44. It pays a dividend of $1.48, for a net yield to me (after
considering the buy commission) of 10.98%. It currently trades at
$21.70, so currently yields 6.82%. My spreadsheet tells me that after
considering the selling commission AND capital gains taxes, I would
need a yield of 7.43% to replace the income. If I could get 8 percent
in a stock of equal quality, wouldn't I be better off? That's why it's
important to always consider selling an income stock-- you may well be
better off in a different income stock. It does me no good whatsoever
to claim (or believe) I'm getting a 10.98% yield when I'd be money
ahead to sell it and buy something yielding 8%.
So why do I still have this stock when I could do better elsewhere?
Because I don't have enough of it to make the trade worthwhile! A
piddly amount is a piddly amount no matter what the yield, but for
reasonable sized positions it could make a very big difference.