If you rewound the tape back to a conversation I had with my son in September, you’d hear me say something like, “I know you’ve got a huge gain in Apple (AAPL) right now, but don’t sell … it’s a lifetime hold.”
The good news is that he’s still got a nice gain even as the stock slowly sinks further below the $400 level. The better news is that he’s got 40 or so years before he touches retirement, so time is definitely on his side.
He can certainly afford to let his investment play out, especially since Apple’s recently issued dividend yields north of 3% now … and much higher for him, considering his lower cost-basis. If nothing changed for the next 40 years, he’d still be ahead on share price and sitting on a nice chunk of cash to boot.
Still, I’d like to offer him, and any other young investors — or those with a similar “good” problem — some suggestions on how to stay ahead in your winners for the longer term.
If you’re an investor in Apple or Google (GOOG) who’s enjoyed some major upside, your job as an investor is not done. It’s not enough to just buy the latest iPhone and iPad, or use Google search to find a hotel in San Francisco. You hopefully spent a decent amount of time looking at the company in the first place — now is not the time to take your eye off the ball. Read analyst reports, obtain information and opinions from any of the thousands of websites and blogs — hell, read InvestorPlace! — to keep up on the company.
And don’t be afraid to dig into an annual report! Sure, a lot of it is marketing and public relations garbage, but it’s also full of financial information, with gory details on the company’s business, its competition, and its risks, too. Since you’re invested in the stock, stay invested in the company — and keep up with what’s going on.
Reinvest Those Dividends…
It’s nice to collect dividend cash, but reinvesting payouts increases your stake in the company, boosting the payout and allowing you to dollar-cost average your holdings while you’re at it. Dividend reinvestment is an inexpensive way to incrementally add to your holdings — take advantage!
…Or Save Them Wisely
If you’re not going to reinvest the money in shares, for goodness’ sake at least find a savings vehicle that provides a compounding mechanism. Even the most basic savings account will do that for you. If you don’t have an account, open one, and fill out the paperwork that gets your dividends deposited directly into the account, earning compound interest.
Here’s an idea: Call that account the Baltimore Orioles Season Ticket savings plan. That should give you some incentive not to reach in and siphon away the savings.
Take Some Profits
If that stock you’ve owned suddenly goes through the roof, don’t be afraid to take some off the top. It’s probably what I should’ve done with my little stake in Apple (but alas did not). Regardless of your time horizon to retirement, don’t be afraid to take a win. If nothing else, you’ll be smiling while others — in this case, your dad — mutters curses under their breath.
Protect Your Gains
In my case with Apple, knowing the time horizon certainly isn’t 40 years, I should’ve at least put in some limit orders to set a downside floor price. While it’s impractical to have a standing limit order for the next 40 years, putting some in place at strategic points is a great plan.
Find values where you want to take some profit, place a limit to sell at no less than a given price, and wait to see what happens. Best case you’ve sold some shares at what will still be a nice profit; worst case, your order isn’t filled and you are no worse off.
Be an active manager of your investments. Stay up to speed on events that affect your investment decisions — both macro (economic or segment) and micro (company-specific). Don’t be afraid to take advantage of the occasional “crazy money” rallies, and by all means cover your backside, too.
Oh, and every once in awhile, let Dad know he just might be wrong.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he was long AAPL … and given today’s price, will probably stay that way for a long time.