Ask Colin

When does a long-term holder sell one of his favoured long-term investment (dividends in retirement) stocks? I ask this in view of the HIH debacle.

The quick answer is that it should be sold when your investment strategy says you should sell it.

Of course, I have given you a smart answer. The reality is that most investors make an investment without any well thought out strategy. That is the reason that they commonly ask this question. They are unclear about what they were trying to do.

The bit in brackets says (dividends in retirement). If that was the objective, why is the question being asked? Surely the implied strategy is that it will be held for dividend income?

Then your question goes on to talk about HIH. This suggests some muddled thinking. HIH failed completely. If you have a (dividends in retirement) stock, surely it cannot be a stock that might fail? Then again, maybe you are beginning to see the world realistically. Any stock can fail. So the idea of buying a stock and holding it 'forever' for (dividends in retirement) is not sound.

In that case, the problem is that you need to rethink your implied strategy and make it explicit. You need clear guidelines for what stocks to buy and what would cause you to sell them. There is a wide range of both fundamental and technical methods you could use for both decisions. There is no single correct answer.