When to Sell
Research for Online Investors

by John Dalt

2/17/11

We have been busy in the market today, as we are taking our own advice.  Trading the market and selling into the strength on our investments.  Coca Cola (KO) announced an increase in their dividend this morning.  KO was one of our holdings in the Long-Term portfolio, until today.  We sent out an alert last night to our subscribers to place a sell order on KO at $64.50  Our timing did not consider the dividend announcement.

We knew it was coming from a historical basis.  We had owned the stock since July of 2009 and were able to book a 36% profit.  With the market approaching 10-year highs, we looked for the chance to take some money off the table.  How do you decide when to sell stocks?

This is the hardest part of investing for me.  When they violate our trailing stops, a cold heart has to make the decision to cut and run.  But how do you know when to sell a winner?  I looked at KO as fairly priced.  Our original reason to buy KO was on valuation and a play on their foreign earnings.  Future inflation, and devaluation of the U.S. dollar, should increase foreign earnings in U.S. dollars.

KO’s earnings announcement made reference to continuing their stock buyback program in 2011, but the monetary commitment was less than in the past.  This hinted they may be leaving room for a dividend increase.

The current inflation in commodities will raise the costs of KO, which may squeeze their margins.  I don’t make too much of this, but it is a consideration.  Their foreign profits may be worth more in U.S. dollars but tightening margins can hurt those foreign profits.  The Price Earnings ratio was over 19, and we considered that high for the company.

KO has been a great stock for our subscribers, but all good things must come to an end.  We may buy it back in the future, but we would like a P/E of 15, which would put us back down at $50 per share.  Will it ever see $50?  I don’t know, but we will be watching for this great blue chip company to enter our realm of “value priced” companies again.  Our original buy price was $49.00

Inflation seems to be everywhere, unless you ask the Federal Reserve.  Cotton hit 150-year highs yesterday.  My old blue jeans are looking better and better!  How much higher can cotton go?  I am from a farm family, and all for farmers making as much money as the market will allow.  But when commodities break out to a 150-year high, I have to wonder how long that can last.  A bubble in cotton is no different than a bubble in internet stocks, or tulip bulbs.

The BAL etn tracks the price of cotton.  Cotton closed over $2 dollars per pound today on the New York Board of Trade.  Eventually, the buyers will look around and wonder “Who is going to buy these contracts from me?”  Cotton demand has increased as economies recover around the world, and supply is tight.  Australia has lost part of their crop to the floods in that country.  India is the world’s second largest exporter of Cotton and they have placed limits on exports.

Many of you remember that my father stops by every morning for coffee.  He will celebrate his 91st birthday next month.  He was driving down to the grain elevator yesterday to sell some wheat for $9.00 per bushel.  What a price!  The old joke around the coffee shop are that farmers had $9.00 wheat but sold it for $3.00  Producers of raw commodities are used to the rise and fall of prices.  Those with a long memory sell when the price is compelling, not when it has fallen back to their “stop loss.”

To the mailbag:
Who says we don’t have free healthcare?  If you can’t afford a doctor, go to the airport.  You will get a free x-ray and breast exam.  If you mention al Qaeda, they throw in a free colonoscopy.---subscriber H.T.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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