Thursday, March 20, 2014

Selling Low-ROI Stocks on Empire Avenue

Empire Avenue is a virtual stock market game where players earn dividends based on the social media activity of their stocks. Many new players seek to maximize the return on their early investments by making high-yield purchases.

I promote an investment strategy that includes a mix of high-yield investments and reciprocal purchases. I do not, however, support the practice of sorting out the low dividend stocks and selling them. 

Keep these factors in mind when you are tempted to sell "low-ROI" stocks in your Empire Avenue portfolio.

Commissions 


Selling stock to invest in other stock fritters away portfolio wealth. You are going to spend at least 9.75 percent on commission fees if you pay 5 percent on the sale and then another 5 percent on a purchase. 

That is a minimum of 9.75 percent. 

Commissions rise as the number of shares you hold in a player increases above 500 shares. Also, hot stocks can be subject to a fast-mover commission of 15 or 30 percent. So, if you sell hundreds of shares of low-ROI stock to buy a fast mover, you will be bleeding your portfolio equity.


Yield Is Not a Retroactive ROI


Yield is a simple calculation we use to evaluate the ROI of a stock based on the current price and dividends.

Yield = 100 x (dividends/share price)

However, we have to remember that when a stock's yield goes down because the share price went up, the amount we previously invested does not change. As a stock's price goes up, we do not spend any more eaves to own those stocks. 

Active Players Show Steady Growth


Active players increase in value over time. Dividends reach a maximum for long-term players, but their share prices keep rising and driving down their yield.

However, these are the most active participants from a limited pool of players. You will want to network with them to get ahead in the game. 

Also, if you are playing with a basic EAv membership, you can only receive dividends from a total of 5000 accounts. Once you reach that milestone, yield will no longer matter as you seek to own the 5000 players paying the highest dividends regardless of share price.

For these reasons and many more, I have found that selling an active player today often leads to buying that player again later at a higher price.


Yields Are Shifty


Dividends fluctuate due to a variety of factors like: 


  • Increased activity around a launch or life event,
  • Decreased activity during a vacation or health event,
  • Social platform reset or change in data sharing with EAv,
  • EAv algorithm tweak.


Stock prices are even more fluid. When a stock hits a sweet spot with yield, investors snap it up and push the share price higher based on what may or may not be typical dividends. 

Social Cost


Empire Avenue is a social network. Churning shares may create a backlash against your account in the community, especially if you tell players why they are suddenly unattractive for you. 

Keep in mind, if you padded your portfolio with invest and gift missions--a smart practice in my mind--you must think twice before selling those shares. Players will not take kindly to your selling the shares they bought for you, no matter how low their yield is.


Bottom Line


Some players have adopted a strict no-sell policy on Empire Avenue. They buy for life. I am not that extreme, but I think it is wiser to consider your purchases carefully than to plan to sell them off at a later date. 


What About You? 


Do you have a policy for selling off non-productive stocks? Please share your views in the comments. 


Would you like to learn more about Empire Avenue? 


Feel free to click through on my referral link. Empire Avenue is free to join and play, and my referrals benefit from my support and attention.

Full Disclosure:


I am an Empire Avenue affiliate. If you join using my referral link, I may receive a commission on any future purchases you make on the site.

NYSE photo courtesy of thetaxhaven.

12 comments:

  1. I have changed course on this path, over time. As I have more than 5000 in my portfolio, I focus on dividend, not ROI or Yield. I max as quickly as I can on all avg. dividends over 1.00. I do sell shares, when the dividend drops below .01, as those can't be active, in my opinion.

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    1. Thanks for sharing your strategy, Dennis. I agree there is a point at which holding inactive shares is pointless.

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  2. Excellent points, Tammi. My policy continues to evolve. Initially, I sold when share prices were dropping - because I hadn't yet discovered the meaning and significance of dividends. Now, I tend to hold, unless the share price is steadily declining and the divs are below 0.15.

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    1. It's kind of strange the way EAv makes it so easy to sort by falling price, as if that is a reliable cue for selling. Meanwhile, we have to go to avenue.io for yield data.

      Thanks for sharing your strategy, Jim. I tend to look at whether someone continues to play EAv. I have some stocks with low dividends but they keep investing in me and playing game, so they're safe for now. :)

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  3. I rarely sell, unless I'm reaching the portfolio limit and the person hokds no stock in me. The buying and selling always comes second to the connections you can make.

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    1. I agree, relationships trump eaves. Thanks for commenting, Ian!

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  4. When someone is new I buy 200 shares in them. IF after a month, they have not contacted me or bought one share....I sell them. Allow me to support you and I will continue to do so. A thank you or action to indicate you have an interest in my wee world goes a long way. Yields, dividends, ROI change as DUPs changes the rules. But being truly interested in what another person believes helps me to learn. When I needed to sell most of my shareholders because I was on sick leave....I told them to sell me. They did not They understood that I would get well and buy them back. In most cases, I have. There was one group who bullied me and insisted that I buy them BACK when I was under doctors care. I bless them and continue to block them. When you support a person, you are not dealing with shares....you are dealing with CARES.
    Thank you Tammi for your sharing caring ways. I love learning from you. When I grow up I would like to be more like you and less like #granniegram.

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    1. Thanks for sharing your experience, Mary Helen. Some players in the community react strongly to being sold, which is why I prefer to hold on to active players regardless of yield.

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  5. I prefer to work with investors, after all even todays high rollers started out low at one point. I prefer to work and help investors grow if I can, like Mary I've had a few buy me buy me's but spend less time with those. Low ROI is not a reason to auto sell, people have commitments or circumstances you have to appreciate that, but making space in the portfolio removing non active low yield investors or trimming makes sense, its a matter of finding a balance.

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  6. I'm still not certain what I am doing. I do fall into the category of high churn. Over the past 4 months i've been on the avenue, I've tried a multitude of buying and selling practice which I'm sure led to wasted portfolio wealth.

    I'm now more focused on "active" avenue players. I still buy ones with high ROI that aren't active on EA, but I tend to hold and buy "regulars" even if they wouldn't generally be considered "smart buys". I'm in that category I believe.

    I don't have enough time to use Avenue.io for better management of my portfolio, so I'm content with keeping my number low despite the limitations that come with it.

    Great article Tammi. I learned a lot.

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    1. Thanks Nigel, I'm pleased you enjoyed the post.

      Only four months on EAv? You're doing very well in my opinion.

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