Breaking Even

“When it gets back to break-even I’ll sell it.”

That’s what a lot of people say when faced with a market downturn–whether it’s individual equity holdings or the entire market. But how do you tell that you’ve broken even?

By most people’s estimates, the market is about 10% below its high point. Back in late 2007, the Dow hit 14,100 and now its 12,600. But that ignores dividends. If you reinvested your dividends back into the market, the Dow is basically back to its 2007 levels—the S&P is a little below there. Then again, there’s inflation. Gas prices and food have driven up prices about 9% in the three-and-a-half years since the market’s high. So, adjusting for inflation, the market is still down some 10%

But waiting break-even isn’t a sound way to manage a portfolio. A stock doesn’t know you own it, and it certainly doesn’t understand what your cost-basis is. In fact, the only folks that care about what you paid are Uncle Sam and your accountant. Taxes are the only real reason to consider what a stock cost—an historical artifact.

What really matters is the future—what a stock is going to do, if they can continue to increase their dividends, if their business is going to expand. Where an investor bought a stock doesn’t help in figuring those things out.

Getting back to break-even is a natural feeling, especially if a stock goes down right after you buy. But what matters is the future. And history doesn’t tell you that.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-11T11:03:42+00:00 July 11th, 2011|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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