Friday, December 26, 2014

In the end, it's your decision, your gain or your loss

Some time ago, I bought a few hundred shares of Norbord. I was betting on a recovery in the U.S. housing market driving the shares of the large OSB maker higher. The monster dividend was nice but I had doubts that it was sustainable. I expected to see a cut in the dividend in 2015.

After purchase, the stock popped briefly and then settled into a decline that dragged my losses into the four digit numbers before finding a floor. Norbord, once a market darling, lost its luster and many analysts downgraded the shares.

In October Raymond James cut their price target by two dollars to $22. That same month, RBC Capital dropped its target also to $22. As I recall, even a Norbord booster like ScotiaBank dropped its target price a little. And what happened? The Norbord stock price started on the road to recovery. Today, not two months later, my holdings are again in the black. The dividend is being cut in the new year but I got two good payments before the announcement. Some analysts are even raising the target price on the stock. I'm happy.

The lesson? Others have opinions but there is only one that really matters: Yours. Do your homework. Don't just buy on the advise of others. Have some rules and stick to them. For instance, I have a rule against buying companies that are unprofitable. Almost every time I have ignored this rule, it has cost me money.

And there is another lesson. If you buy stock in a good company and the price drops, don't panic. Sell if the story surrounding the stock has changed for the worse but if the stuff that attracted you is still intact don't be overly concerned with a small fall in share value. Stock prices go up and down. This is just life. No reason in itself for great concern.

I invest for the long term. If a stock is paying a dividend of four percent or better based on its present price, I feel it is paying its way. I hold and I don't lose sleep. Companies like Precision Drilling fall into this category. Until oil prices rebound, I will hold onto stocks like my Crescent Point and take solace from the dividend. In some cases my dividend has shrunk but my faith in these companies has not. There may still be a sports car in my future.

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