Profit by any other name


Published in the Geelong Advertiser, January 2013 by Dale Gillham

Over the decades that I have been helping traders and investors, the one question I get asked the most is: "What do you think about X stock?" 

It has been my experience that the majority ask the question because they are losing money.

My most common question to them is, "why did you buy it", and the invariable answer is, "because it pays a good dividend".

Let me be upfront in saying that this is not a good answer, especially when you consider that for 10 years I listened to investors give me that answer on Telstra while it fell over 60 per cent in price.

To me, a good investment must have capital gain and income.

I understand that everyone has their own personal circumstances, as some tell me that they need more income while others need more growth. 

However, I would argue that for investors, both are equally important and both give you the same outcome.

Income can come in two forms, being receiving dividends on your shares and receiving a capital gain.

Dividends come from company profits and capital gains are made when you sell shares at a profit.

To me it is the same thing, as profit is profit.

The trick to making more income is learning to sell.

So what do we expect in the market? 

I mentioned last week that our market had risen for seven straight weeks and that we were seeing some short-term weakness.

It turns out that the weakness was very short-term, in that while our market closed lower than it opened last week, it did trade higher than the previous week.

This week the market has traded up again to now be in its ninth straight week of making higher highs.

Again, this is not common for our market to do, and as such I would not be surprised if we saw our market fall for one to two weeks before rising once again.

Any fall now could present an opportunity to enter into some good shares at slightly lower prices.

For now I suggest that you sit back and enjoy the ride while it lasts, which is nice given the rocky ride of the past few years.


Back to Articles