This is part of my intermittent series on price, one of the most important and commonly encountered considerations in investing and trading. For this post, I will be touching on a relatively local concept called “freehold”.
Picture generated by Meta AI
“Freehold” on Securities
While it is a term associated with properties, the word “freehold” in securities investing meant that the returns, be it capital and/or income via dividends/distributions, had covered the initial amount of the investment. Any further gains from the securities in question were treated as “free”.
The origins of the use of the word in this context were unknown to me, but the best I could surmise was probably a mix of the view of an investment paying it off itself, and the sense of freedom of doing whatever one wants with the extra returns. It is akin to having a stock price achieving a “two-bagger” status, i.e., being doubled in its value.
What to Do After
Though the freehold status has been achieved (and enjoying the moment of “full of win” feeling), the next immediate thought would be what one is going to do about it. A common approach would be to sell off the excess above the initial investment or deploy later dividends/distributions received into other asset classes or securities, but this action would be very much dependent on circumstances.
For example, if there is further room for the share price to grow, or if even after reaching a two-bagger status, the book value of the share is not reached, then it is wiser to keep them in place. Another is that if there are no alternative or incentivising assets or securities to invest in, and one’s portfolio is not due or relevant for rebalancing, then it is prudent to just leave it as it is.
If one has multiple portfolios (i.e., the Portfolio Multiverse concept), the choice of divesting the excess and channel them to other portfolios is plausible (e.g., trading, CPF, SRS, etc.). This could work for dividends/distributions received, too, since they are cash in nature and liquid enough to move around.
The Bedokian’s Experience
One of the rare moments which compels me to practice the “selling of excess” was our partial divestment of Apple and using the proceeds to initiate a trading (and subsequently investing) position into Nvidia back in March 2024 (which I shared here). Ironically, in the same link, I had also shared that we had bought back Apple (it had hit our entry price) around a month and a half later after selling some away.
On hindsight, it turned out to be a good move as our first Nvidia tranche had returned more than 100% (freehold!) while it would just gain around 50% had the capital remained in Apple.
Check out the other posts in my All About Price series.
All About Price: Introduction & Valuation of Value
All About Price: Buyer/Seller Remorse and Premorse
All About Price: The 52-Week High/Low
All About Price: Reversion To The Mean
All About Price: Bottom Fishing
All About Price: The (Price) Margin Of Safety
All About Price: The Price Ratios
Disclosure
The Bedokian is vested in Apple and Nvidia.
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