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Wed. Sep. 2, 2009

Never Fall In Love With A Stock *

Over time we tend grow fond of people we have a relationship with. Sometimes we grow to love them like a brother or sister; sometimes even more. In much the same way we can easily grow to love certain stocks, but this is not necessarily a good thing.

It is easy to be captivated with a top performer. Everyone loves a winner. During the 80′s and 90′s when Jack Welch ran General Electric (GE) the company was a well-oiled machine that routinely beat the streets expectation and the ever-increasing stock price reflected its performance. I once said that if I could only buy one stock for the rest of my life, it would be GE.

Then there’s the first-love dart – that first stock that you bought. For some reason there is often an emotional attachment for the first of anything. Some business owners frame the first dollar they earn, while some investors have a hard time letting go of the first stock they purchased, especially if the stock performed well for an extended period of time. For me it wasn’t the first stock I purchased (I can’t even remember what it was), but instead it was the first stock I purchased for its dividend that held a special place. That stock was a REIT, First Industrial Realty Trust Inc. (FR).

So what happened? Both stocks cut their dividends and I immediately sold them. To achieve our long-term investing goals we must remove emotion from the equation. It is a recipe for disaster when we make investing decisions based on a past relationship with a stock that is contrary to the current fact pattern.

That is not to say I am not fond of certain stocks. For example, I currently like or admire these dividend stocks:

Johnson & Johnson (JNJ) – Yield: 3.30% – Analysis
Johnson & Johnson engages in the manufacture and sale of various products in the health care field worldwide.

Nucor Corp. (NUE) – Yield: 3.10% – Analysis
Nucor Corporation is engaged in the manufacture and sale of steel and steel products. As the largest minimill steelmaker in the U.S., Nucor has one of the most diverse product lines of any steelmaker in the Americas.

United Technologies Corp. (UTX) – Yield: 2.60% – Analysis
United Technologies Corp. is an aerospace-industrial conglomerate with a portfolio including Pratt & Whitney jet engines, Sikorsky helicopters, Otis elevators and Carrier air conditioners, among other products.

McDonald’s Corp. (MCD) – Yield: 3.60% – Analysis
McDonald’s Corporation is the largest fast-food restaurant company in the world. Its restaurants serve a varied, yet limited, value-priced menu in more than 100 countries around the world.

3M Co. (MMM) – Yield: 2.80% – Analysis
3M Co. is a diversified technology company with a presence in various businesses, including industrial & transportation, healthcare, display & graphics, consumer & office, safety, security & protection services, and electro and communications.

Not all of the above stocks are on my current buy list, but they are some of the ones that I keep a close eye on for good opportunities to add to my position.

Full Disclosure: Long JNJ, NUE, UTX, MCD, MMM. See a list of all my income holdings here.


5 Responses to “Never Fall In Love With A Stock *”

  1. Brad Castro says:

    I’ll probably regret posting this, but certain stocks are “whore” stocks that only provide the possibility of short term gratification (but what gratification!).

    And then there are the other, marrying kind of stocks that you can raise a family with.

    Obviously the long term stocks (and underlying businesses) are the way to go, but how can a young man with a new brokerage account not be profligate and chase all those momentum plays?

  2. Polorise says:

    good advicxe, just wish a few Apple investors on various stockboards would take note.

    ;o)

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