Long Term Investing with Candlestick Patterns

Long term investing in the stock market can be defined as the holding of a security for a minimum of 5 years, to as long as 30 years. This is a more rigid definition, although it is one of the more subjective stock investing concepts, depending on the individual.

Normally, long term investing provides a means for a person to make ends meet during retirement, with the idea that no one can successfully retire without financial freedom. So with this idea in mind, successful traders purchase securities with the intention of holding the security for an indefinite time period, adding to it through the years, and acquiring enough dividend income to offset the loss of income after retiring. There is also a desire to leave some money behind to loved ones to relieve their financial burdens as well.

So if a security is going to be held indefinitely, what long term investing criteria should you be looking for in that security to ensure the best investment of your money? Dividend income is certainly a given. And since there is no motivation to sell the security, capital gains may not be an issue.

So what should you be looking for in your long term investing portfolio? Purchasing securities simply for the dividend income isn’t good enough. To improve your risk reward ratios, and to ensure that a company isn’t participating in fraudulent activities, securities should be purchased from companies that have a long history of raising their dividend every year. This will eliminate the risk of investing in a start-up company that may not even be around in a year or so. After all, the money has to be there to pay the shareholder.

Also, the rising dividend every year would help offset the risk of inflation and the risk of a lower stock price during the year would actually accelerate any income from the security.

Since you would want your position in the stock to grow through the years, resulting in increasing dividends regardless of stock volatility, the dividends would be reinvested into the stock until retirement. Therefore, a lower stock price would purchase more shares at a higher dividend yield and would simply accelerate dividend income.
When would you want to sell a stock in your long term investing portfolio?

Times and reasons to sell stocks vary. If you eventually have too much money tied up in just one stock, and it’s making you uncomfortable because it conflicts with your overall stock trading plan, sell some of it. Or, a company may stop increasing its dividends consistently which may also motivate you to lighten up on your position or divert your funds elsewhere.

Also, a company may reduce their dividend. When and if this happens (and it does) do not be overly anxious to sell the stock. First, figure out why the company is reducing their dividend. It may be for debt reduction, acquisition possibilities, or for other money management reasons. Or, the company’s dividend yield may have been greater than the dividends paid by their peers. However, to be safe, do not add to your holdings in this company and give management a chance to see how they handle the extra cash, since they appear to have better use for the money other than paying their shareholders. The resulting growth in that company may make up for the lower dividend.

Speak Your Mind