REINVEST or CASH when P/E is very high

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advicenow
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Joined: Wed Dec 12, 2018 2:50 pm

REINVEST or CASH when P/E is very high

Post by advicenow »

I have held a particular stock for 20+ years which has done nothing but gone up and up and now is at an all time high!
At the moment, it is set to reinvest but wondering if the fact that the P/E is 86 (!) should make me change to take cash and not buy more . Currently at $271. The estimated EPS IS $1.25. Div yield is .59%.
Do not need cash for income nor do i feel like rebalancing at the moment....So, my very NON-EXPERT question is:
To what extent should I be changing my election to cash due to the all time high price and very high P/E?
Zacks current rating is a BUY (value D, Growth C, momentum B)- not that we can go by any one predictor.
Da5id
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Re: REINVEST or CASH when P/E is very high

Post by Da5id »

advicenow wrote: Fri Jul 30, 2021 4:45 pm I have held a particular stock for 20+ years which has done nothing but gone up and up and now is at an all time high!
At the moment, it is set to reinvest but wondering if the fact that the P/E is 86 (!) should make me change to take cash and not buy more . Currently at $271. The estimated EPS IS $1.25. Div yield is .59%.
Do not need cash for income nor do i feel like rebalancing at the moment....So, my very NON-EXPERT question is:
To what extent should I be changing my election to cash due to the all time high price and very high P/E?
Zacks current rating is a BUY (value D, Growth C, momentum B)- not that we can go by any one predictor.
Many here don't do individual stocks, partly to avoid these kinds of decisions.

Once you decide to own individual stocks, you need some criteria to evaluate whether you should continue owning them. Or continue acquiring more shares by reinvesting dividends to buy shares. Presumably you must have some criteria you use to select stocks, can't you apply it here? Would you buy this stock today by your strategy? If not, certainly you shouldn't reinvest dividends, and perhaps (depending on capital gains tax situation) you should pare it back.
Last edited by Da5id on Fri Jul 30, 2021 5:24 pm, edited 1 time in total.
Topic Author
advicenow
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Re: REINVEST or CASH when P/E is very high

Post by advicenow »

Yes...that makes sense! Thank you. I would never be buying at current high despite the stability of the stock.
Hebell
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Re: REINVEST or CASH when P/E is very high

Post by Hebell »

When I buy individual stocks, I define sell criteria at the time I purchase it. It makes it more algorithmic and less subject to emotional decisions. I agree with the poster above, if you would never buy at this level, don't reinvest and if it's making you uncomfortable sell it. Profit taking is good. Happy with the profits? Take them off the table.
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advicenow
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Re: REINVEST or CASH when P/E is very high

Post by advicenow »

YES! It's so hard to sell these stocks that keep going higher and higher but then I try to remember that old saying that "greed can cause stock values to rise far above what they should be worth. " Greed is an ever present factor in long term equity trading and it has influenced me more than i care to realize :(
SR7
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Re: REINVEST or CASH when P/E is very high

Post by SR7 »

Sorry to state the obvious, but it’s not all or nothing, you could cash in 30% or 50% etc.

What % would equal (or double) your initial investment?
I studied Physics not Finance, so best to ignore anything I say about money.
UpperNwGuy
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Re: REINVEST or CASH when P/E is very high

Post by UpperNwGuy »

I reinvest. I don't care about P/E ratios.
Topic Author
advicenow
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Re: REINVEST or CASH when P/E is very high

Post by advicenow »

My thought is to change to cash... at least JUST temporarily and I would only pare down at most 5-8% of a position that has provided me with such a crazy return and continues to do so---Obviously keeping in mind the resulting capital gains tax.
Yes, there are those that would continue to reinvest no matter what but the pendulum swings dramatically in these cases!
It was just that I had not been paying any attention to the P/E and began to wonder about it.
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grabiner
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Re: REINVEST or CASH when P/E is very high

Post by grabiner »

Since there is no special benefit to reinvesting, the default decision should be to take cash. When you receive the dividend, you should invest it in whatever best fits your needs, which might be the same stock or mutual fund, or a different one.

Since your stock has gone up and up, it is probably now a large portion of your portfolio, and thus buying more of the stock will increase your risk. This suggests that you should not invest any more money in that stock.

I do the same at the asset class level. I hold Vanguard Total Stock Market Index, but I am overweighted in US stock, so I don't want to reinvest the dividends in this fund. Instead, when this fund pays dividends, I take the cash and buy an international stock fund. If the US market falls next year and foreign markets rise, I will do the same in the other direction, taking my international fund dividends to buy more Total Stock Market. I don't want reinvestments to be automatic in either direction.
Wiki David Grabiner
Jeepergeo
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Re: REINVEST or CASH when P/E is very high

Post by Jeepergeo »

advicenow wrote: Fri Jul 30, 2021 4:45 pm I have held a particular stock for 20+ years which has done nothing but gone up and up and now is at an all time high!
At the moment, it is set to reinvest but wondering if the fact that the P/E is 86 (!) should make me change to take cash and not buy more . Currently at $271. The estimated EPS IS $1.25. Div yield is .59%.
Do not need cash for income nor do i feel like rebalancing at the moment....So, my very NON-EXPERT question is:
To what extent should I be changing my election to cash due to the all time high price and very high P/E?
Zacks current rating is a BUY (value D, Growth C, momentum B)- not that we can go by any one predictor.
Is the company worth that PE? If so, buy. If not, sell.
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