3 Stocks to Sell, 2 Excellent Strategies

NEW YORK (TheStreet) -- At the ripe old age of 36, I scoff at the notion of "sitting in cash." You hear so many people say that in all different types of market environments.

The market rallies. And the worriers "sit in cash" because they expect a pullback, crash or correction.

The market moves wildly. Uncertainty breeds anxiety. Anxiety hates uncertainty. Time to sit in cash.

The market crashes. It's just too much to stomach. I'm in cash.

These erratic movements treat investing like an uncertain exercise based on intuition, rather than the long-term systematic plan of attack it should be. It's difficult to achieve goals if you're not anywhere near sure what you'll be doing tomorrow. You cannot let the stock market's gyrations dictate how you invest, particularly if you have a long-term time horizon.

In many ways, I run my portfolio like a business. Like a start-up. Head down. Tunnel vision. Pound a beer or two upon incremental victories and immediately get back to work. Ignore the haters. Dismiss the noise. Don't hang with the fearful.

Sitting in cash equates to trying to time the market. Long-term investors should probably never time the market. It's a fool's game. In fact, it's typically far more dangerous than a day trader timing the market. At least a day trader, if they're credible, employs a system based on objective markers such as technical indicators. When long-term investors go to cash, it tends to be an emotional reaction to something temporary. Reentry into the market takes place when you "think" it's about to go up. That's timing the market.

I don't understand why investors, unless they require access to their cash soon, don't just simplify the process by doing two things:
  • Creating a monthly budget; and
  • dollar cost averaging.
  • Each month, on a Post-It note, I estimate how much money I expect to take in. It takes 10 minutes or less to determine how much cash I will put out for expenses. I put a little extra in the "whatever" category, which includes random, unexpected and entertainment. I pay the freaking IRS. I put around the same amount into a regular savings account. Every remaining dollar goes toward my investments, ranging from speculative plays to long-term buy-and-hold to several Dividend Reinvestment Plans.

    In each instance, I dollar cost average into the positions. I transfer cash and write checks to make buys several times a month. In short order, the consistent and periodic investments add up and the dividend and covered call (where applicable) reinvestment income becomes meaningful.

    Once you get past the early days of dollar cost averaging, you quickly realize that it's the most stress-free and effective way to proceed for the mere mortal individual investor. It works wonders in volatile, sluggish and even bear markets. In even brief downturns, I have seen my average cost bases come down and ultimately produce some nice, usually on-paper returns when the market recovers, rallies and sustains higher.

    Time to Unload

    I do not mean to say that it makes sense to stubbornly stay the course on every stock in a portfolio. You should reposition, rebalance and sell winners and dogs. For example, I recently unloaded three positions for very different reasons.

    If you've been in Verizon ( VZ) for any length of time, it's been quite a ride. VZ returned 22% over the last year and about 11.5% in the last three months. If it had a stronger media component to it -- like Comcast ( CMCSA) or Rogers Communications ( RCI) -- I would not hesitate to buy more, even at recent highs.

    But, while it can certainly grow, particularly as more people adopt smartphones and the well-received FIOS expands, Verizon is in between a rock and a hard place in terms of generating really massive growth going forward. I would rather take the money I was directing to VZ each month and build a larger stake in Canada's RCI or BCE ( BCE). As I have explained in several recent articles, a looser regulatory situation North of the Border affords Rogers and Bell much more opportunity to expand what amounts to a media and telecommunications empire.

    Verizon runs in a space with too many question marks. By contrast, the way forward for companies that do exactly or much of what Verizon does looks much less murky, particularly if they control content. Imagine if Verizon not only delivered wireless, Internet and television, but owned premium content, major sports franchises and high-profile entertainment venues like Comcast, Rogers and Bell do. It would be a completely different game.

    Speaking of Canada, I unloaded a losing position -- the iShares MSCI Canada Index ETF ( EWC). While still long-term bullish Canada, I would rather allocate capital toward the companies I consider well-positioned for the future, not a basket of stocks designed to replicate the return of a broad and relatively imprecise index.

    If housing slows in Canada, I do not necessarily want the banks as part of an ETF. If the world economy slows or contracts, that could impact Canadian exports. I do not necessarily want to be exposed to the stocks that will get hurt in an ETF. I would rather buy the strongest companies on bearish events and continue to buy RCI and BCE before, during and after any carnage.

    For completely different reasons, I decided to get out of Wendy's ( WEN). I love turnaround stocks. I own a couple. Wendy's no longer maintains a spot in that group, however, because I associate more headwinds and question marks with it than I do the other turnaround plays in my portfolio.

    For the purpose at hand the reasons are not germane to the conversation. Instead, consider the broad point: Base decisions on specific situations, not noisy broad market phenomenon.

    Breaking that down: "noisy" broad market events equal macro happenings such as what's going on in Europe. Should the European situation sour you on U.S. equities? I certainly do not think so. While I could see why it might sour you on Europe, plenty of places worthy of investment still exist on the continent. I refuse to allow the noise produced by the crisis of the day to shake me out of a long-term plan. Breaking stride at too many points in that plan is akin to taking one step forward and two steps back.

    As usual, don't make investing more complicated or stressful than it needs to be. Lay out a good plan and adhere to it, making only sensible and reasonable adjustments along the way, not knee-jerk reactions to anxiety.

    This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

    At the time of publication, the author was long BCE and RCI.

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