Well, I just decided to do some selling and buying, so in the interest of full disclosure I'm posting about it immediately. This will be a supplemental entry to the regular weekly blog.
I've put in a sell order for Netflix (NFLX) at $121.44. That particular dollar-amount makes me a 50% profit on the buy and sell trades for Netflix, including the trading fees.
The reason for the sudden sell is NOT that I don't believe in Netflix. The reason is that I believe in Amazon (AMZN) MORE, and there's an opportunity to buy Amazon. In after-hours trading today Amazon dropped about 7% or more as a result of the company's quarterly report. That brings the stock price down to the range in which I want to buy it. I can only afford to buy 17 shares, and I prefer round numbers, so I'll probably buy 15 shares at something less than $180 per share.
I will only be able to do this if my Netflix shares sell, of course. Netflix was a bit weird today, and may not get up to my sell price tomorrow.
None of my orders will go into effect in any meaningful way until Wednesday morning at 9:30AM Eastern, so this disclosure comes about 17 hours before my trades might begin to happen.
I guess tomorrow will be an interesting day for me. I'll let you know how it turns out, when I know.
31 January 2012
30 January 2012
Amazon
Some weeks ago I described the characteristics I look for in a stock's financials. The short version is that I look for positive net income and more cash than debt, but here's a link to the original column in case you want the long version.
I also have written about my love of stocks that pay dividends, but this is not a dealbreaker. A stock that doesn't pay dividends can still be an excellent investment, if the timing is right.
Thus far, all of these writings have been framed within an overall narrative in which I have detailed what I currently own and why. I've even discussed, for a few stocks, the price at which I made a purchase and the price at which I am willing to make a sale.
This week I'm discussing the first of many stocks that I don't own, but I am considering for future purchase: Amazon (AMZN). Amazon is very nearly my dream stock. The company consistently produces a very healthy net income, and has literally billions of dollars in cash while also having exactly no debt. It's the industry leader in internet shopping, and is expanding into areas in which it's competing quite healthily with Netflix and Apple. The only thing that Amazon could do further to entice me into buying stock would be to pay a dividend. That said, I'll probably buy some shares whether the company pays a dividend or not.
What's the price at which I'm willing to buy? I'm a firm believer in The Third Rule of Acquisition and so the first question I ask myself is, "What is the smallest price I could possibly be expected to pay for a share of Amazon stock?" It's a simple question, but there's not a simple way to arrive at an answer. Or, at least, there's not a single, simple way that I consistently use. There are a number of competing simple ways that I use in conjunction with each other.
I'll start with a summary page for Amazon. Any summary page will do. Here's a screen-grab from the Google Finance summary page for the AMZN ticker, with the graph conveniently set to 5 years.
Any stock summary page will do because any stock summary page will list the 52-week range for that stock. In this image I can see that, as of this writing, the 52-week range for Amazon was from a low of $160.59 to a high of $246.71.
Also, as I look at the graph, I can see that Amazon's 52-week high of $246.71 is also its 5-year high. In fact, $246.71 is Amazon's lifetime high, but I have had to go find Amazon's lifetime graph to verify that this is the case.
All of this is just to get me thinking about the stock. I've not yet arrived at the price at which I want to purchase some Amazon stock, but I have arrived at a somewhat conservative price at which I would like to sell: $246.71.
This is not my pipe-dream I-can-retire-now price. It's a conservative the-stock-has-recently-seen-this-price-and-so-it-will-probably-see-it-again-in-the-near-future price. In fact, it's probably too conservative, so I'm going to set my completely-theoretical sell price at a nice, round $250.
See, when I look at that 5-year graph for Amazon's stock, I see a little slump back in 2008. That little slump is what the rest of the world calls The Beginning Of The Financial Crisis.
Here's a Yahoo Finance graph of Amazon for the same five years, except it also includes comparison graphs for the Nasdaq, S&P500, and Dow Jones indices. Yahoo chooses to use a graph with an inconsistent vertical scale, which I normally abhor, but in this case it actually allows me to better interpret the comparisons. The same comparisons on Google's consistently-scaled 5-yr Amazon graph are rendered as a very-nearly a flat line at the bottom that really doesn't tell me much.
What I'm trying to say, in words and images, is that Amazon has consistently done well over time, even and especially accounting for The Financial Crisis and The New Normal. Looking at these graphs, I'm tempted to assume that Amazon's stock price will continue in its trend of rising steadily upward for the foreseeable future. That makes its lifetime high of nearly $250 an especially conservative price at which to sell.
Before I get too optimistic about Amazon stock, though, I'm going to look a little more closely at the recent fluctuations in price. In this case, a 6-month graph tells me what I want to know.
The stock has been in a relative slump during the last four months, especially, but it seems to be coming out of it now. The nadir of that slump was at the price of $173.10. That's a bit higher than Amazon's 52-week low of $160.59.
Incidentally, the stock has probably been slumping because investors know that Amazon is selling the Kindle Fire at a loss of $10 per unit. Amazon sold 4-5 million units during the holiday season, so that's a loss of up to $50,000,000.00. That's serious money.
It looks like the informed speculation that the Kindle Fire was probably being sold at a loss appears to have hit in late September of 2011. The same news appears to have been confirmed in mid-November. That explains a lot of what I'm seeing in the 6-month graph. It looks like some investors think that selling the Kindle Fire at a loss might not be the best idea ever.
Of course, other investors disagree, which is why the stock hasn't completely plummeted. One investor's time to get out may be another investor's time to get in.
Personally, I'm bullish on Amazon, but not so bullish that I want to buy this very second. I want to get the stock at the lowest price I can. Having seen a minor freakout on the part of investors in the past few months, it seems reasonable to set my purchase price at $175.
If I can buy at $175 and then sell at $250 then that's a healthy 42% profit. Right now the stock is at $195, though. If I buy at $195 and then sell at $250 then that's only a 28% profit. Of course, 28% is still pretty awesome.
This whole discussion is moot just now, though, because I have no liquid capital to invest in Amazon. Also, I expect to make more than 28% on my current investments, so there seems to be no need to liquidate them just now.
Of course, my Netflix stock has been doing surprisingly well. I was beginning to doubt that investment, in fact, but for now I think I'll let it ride.
That said, if Amazon were suddenly to fall back down to $175 then I'd do some quick math on how much more profit I think I could optimistically wring out of Netflix versus the 42% I think I could conservatively get from Amazon. In that circumstance, I'm guessing Amazon would come out on top.
What if I'm wrong to be bullish? What if selling the Kindle Fire at a loss is the first step to financial ruin for Amazon? More likely, what if the ongoing financial crises in Europe affect markets in such a way as to depress prices on nearly all stocks, Amazon included?
I currently track Amazon and a couple of other companies - Google and Apple - that I'd like to buy in the event of another serious financial downturn. When the financial crisis hit in 2008, Amazon fell from what had been its lifetime high of nearly $100 a share to below $40 a share, briefly. That's an easily-calculated 60% drop.
If so, then it stands to reason that another crisis could drive the price of Amazon down 60% from its high $246.71. That would price the stock at under $100 a share.
If that ever happens, I'm buying. At the very second it crosses $100, in fact. I'll liquidate something to do it. I'll find a way.
I remember when Amazon went down to $40 in 2008. I remember thinking that it looked like a good time to buy, but amidst the ongoing market plunge I thought maybe it hadn't hit bottom yet.
But then Amazon started rising while the rest of the market kept falling. I kept watching Amazon, waiting for it to drop down to $40 again. I had resolved to buy at $40. Or $45. Or maybe $50. Everything else continued to tank. Surely Amazon would drop down to $50 again long enough for me to buy a few shares?
Not so much. It turns out Amazon is a company from which people will buy during a downturn, seeing as how Amazon discounts their merchandise so heavily.
As a result, Amazon not only survived the downturn, but thrived within it. Now Amazon is in the business of putting everyone else out of business.
So yes, I'm going to buy some Amazon stock someday, when the timing is right. If Amazon ever falls to $175 then I'll probably buy then, and if there's some kind of crisis and it falls to $100 then I'll hold onto whatever shares I bought on its way down and then buy more if I possibly can.
Because, ultimately, I think that $250 is way too conservative a price at which to sell Amazon stock.
I also have written about my love of stocks that pay dividends, but this is not a dealbreaker. A stock that doesn't pay dividends can still be an excellent investment, if the timing is right.
Thus far, all of these writings have been framed within an overall narrative in which I have detailed what I currently own and why. I've even discussed, for a few stocks, the price at which I made a purchase and the price at which I am willing to make a sale.
This week I'm discussing the first of many stocks that I don't own, but I am considering for future purchase: Amazon (AMZN). Amazon is very nearly my dream stock. The company consistently produces a very healthy net income, and has literally billions of dollars in cash while also having exactly no debt. It's the industry leader in internet shopping, and is expanding into areas in which it's competing quite healthily with Netflix and Apple. The only thing that Amazon could do further to entice me into buying stock would be to pay a dividend. That said, I'll probably buy some shares whether the company pays a dividend or not.
What's the price at which I'm willing to buy? I'm a firm believer in The Third Rule of Acquisition and so the first question I ask myself is, "What is the smallest price I could possibly be expected to pay for a share of Amazon stock?" It's a simple question, but there's not a simple way to arrive at an answer. Or, at least, there's not a single, simple way that I consistently use. There are a number of competing simple ways that I use in conjunction with each other.
I'll start with a summary page for Amazon. Any summary page will do. Here's a screen-grab from the Google Finance summary page for the AMZN ticker, with the graph conveniently set to 5 years.
Any stock summary page will do because any stock summary page will list the 52-week range for that stock. In this image I can see that, as of this writing, the 52-week range for Amazon was from a low of $160.59 to a high of $246.71.
Also, as I look at the graph, I can see that Amazon's 52-week high of $246.71 is also its 5-year high. In fact, $246.71 is Amazon's lifetime high, but I have had to go find Amazon's lifetime graph to verify that this is the case.
All of this is just to get me thinking about the stock. I've not yet arrived at the price at which I want to purchase some Amazon stock, but I have arrived at a somewhat conservative price at which I would like to sell: $246.71.
This is not my pipe-dream I-can-retire-now price. It's a conservative the-stock-has-recently-seen-this-price-and-so-it-will-probably-see-it-again-in-the-near-future price. In fact, it's probably too conservative, so I'm going to set my completely-theoretical sell price at a nice, round $250.
See, when I look at that 5-year graph for Amazon's stock, I see a little slump back in 2008. That little slump is what the rest of the world calls The Beginning Of The Financial Crisis.
Here's a Yahoo Finance graph of Amazon for the same five years, except it also includes comparison graphs for the Nasdaq, S&P500, and Dow Jones indices. Yahoo chooses to use a graph with an inconsistent vertical scale, which I normally abhor, but in this case it actually allows me to better interpret the comparisons. The same comparisons on Google's consistently-scaled 5-yr Amazon graph are rendered as a very-nearly a flat line at the bottom that really doesn't tell me much.
What I'm trying to say, in words and images, is that Amazon has consistently done well over time, even and especially accounting for The Financial Crisis and The New Normal. Looking at these graphs, I'm tempted to assume that Amazon's stock price will continue in its trend of rising steadily upward for the foreseeable future. That makes its lifetime high of nearly $250 an especially conservative price at which to sell.
Before I get too optimistic about Amazon stock, though, I'm going to look a little more closely at the recent fluctuations in price. In this case, a 6-month graph tells me what I want to know.
The stock has been in a relative slump during the last four months, especially, but it seems to be coming out of it now. The nadir of that slump was at the price of $173.10. That's a bit higher than Amazon's 52-week low of $160.59.
Incidentally, the stock has probably been slumping because investors know that Amazon is selling the Kindle Fire at a loss of $10 per unit. Amazon sold 4-5 million units during the holiday season, so that's a loss of up to $50,000,000.00. That's serious money.
It looks like the informed speculation that the Kindle Fire was probably being sold at a loss appears to have hit in late September of 2011. The same news appears to have been confirmed in mid-November. That explains a lot of what I'm seeing in the 6-month graph. It looks like some investors think that selling the Kindle Fire at a loss might not be the best idea ever.
Of course, other investors disagree, which is why the stock hasn't completely plummeted. One investor's time to get out may be another investor's time to get in.
Personally, I'm bullish on Amazon, but not so bullish that I want to buy this very second. I want to get the stock at the lowest price I can. Having seen a minor freakout on the part of investors in the past few months, it seems reasonable to set my purchase price at $175.
If I can buy at $175 and then sell at $250 then that's a healthy 42% profit. Right now the stock is at $195, though. If I buy at $195 and then sell at $250 then that's only a 28% profit. Of course, 28% is still pretty awesome.
This whole discussion is moot just now, though, because I have no liquid capital to invest in Amazon. Also, I expect to make more than 28% on my current investments, so there seems to be no need to liquidate them just now.
Of course, my Netflix stock has been doing surprisingly well. I was beginning to doubt that investment, in fact, but for now I think I'll let it ride.
That said, if Amazon were suddenly to fall back down to $175 then I'd do some quick math on how much more profit I think I could optimistically wring out of Netflix versus the 42% I think I could conservatively get from Amazon. In that circumstance, I'm guessing Amazon would come out on top.
What if I'm wrong to be bullish? What if selling the Kindle Fire at a loss is the first step to financial ruin for Amazon? More likely, what if the ongoing financial crises in Europe affect markets in such a way as to depress prices on nearly all stocks, Amazon included?
I currently track Amazon and a couple of other companies - Google and Apple - that I'd like to buy in the event of another serious financial downturn. When the financial crisis hit in 2008, Amazon fell from what had been its lifetime high of nearly $100 a share to below $40 a share, briefly. That's an easily-calculated 60% drop.
If so, then it stands to reason that another crisis could drive the price of Amazon down 60% from its high $246.71. That would price the stock at under $100 a share.
If that ever happens, I'm buying. At the very second it crosses $100, in fact. I'll liquidate something to do it. I'll find a way.
I remember when Amazon went down to $40 in 2008. I remember thinking that it looked like a good time to buy, but amidst the ongoing market plunge I thought maybe it hadn't hit bottom yet.
But then Amazon started rising while the rest of the market kept falling. I kept watching Amazon, waiting for it to drop down to $40 again. I had resolved to buy at $40. Or $45. Or maybe $50. Everything else continued to tank. Surely Amazon would drop down to $50 again long enough for me to buy a few shares?
Not so much. It turns out Amazon is a company from which people will buy during a downturn, seeing as how Amazon discounts their merchandise so heavily.
As a result, Amazon not only survived the downturn, but thrived within it. Now Amazon is in the business of putting everyone else out of business.
So yes, I'm going to buy some Amazon stock someday, when the timing is right. If Amazon ever falls to $175 then I'll probably buy then, and if there's some kind of crisis and it falls to $100 then I'll hold onto whatever shares I bought on its way down and then buy more if I possibly can.
Because, ultimately, I think that $250 is way too conservative a price at which to sell Amazon stock.
23 January 2012
Timing
It's all about timing. Knowing when to buy. Knowing when to sell. It's all timing. Well, occasionally it's timing and luck.
It was luck more than timing for me in October. I needed to sell something because I had decided to buy some stock in Netflix (NFLX). I looked over my portfolio and decided that my 100 shares of 3D Systems (DDD) stock had already made me a tidy profit. I had purchased my shares at $16 and they had gone up to $19. Mind you, I think 3D Systems will go to $25 someday, based on past performance, but past performance is no guarantee of future performance and all that jazz. More importantly I needed some cash if I wanted to buy Netflix.
Also, even if 3D Systems did go to $25 then that was an additional profit of 32% or so. However Netflix in late October was priced around $75, and I thought it could go to $180. That would be a profit of 140%, and a potential profit of 140% beats a potential profit of 32% all to pieces.
I decided to take the win. I sold my 3D Systems stock at $19 per share on the 26th of October. I bought 24 shares of Netflix at $80.14. I wanted to buy 25 shares at $75, but it was already on its way back up, so I decided to do 24 shares at the higher price, instead.
It turns out I could have waited. We'll get to that in a second. First let me tell what happened to 3D Systems' stock. It fell. On the 28th of October, just a couple days after I sold, it suddenly fell, closing at $16.20. Over time it fell even more for a while. I had gotten out just in time. I can't tell you why it fell. Press releases, internet chatter, and company reports look just as good before the fall as after. It may have simply been the market being weird. I don't know. Sometimes good timing is just luck.
Good timing is also paying attention, though. I kept watching the 3D Systems stock. I watched it fall and eventually I bought again. I still believe in 3D Systems, and I know a bargain when I see one. I bought 100 shares again, this time at $15.50. As of this writing it is flirting with a price of $19 again, so I'm likely to profit from that trade a second time. That said, I have no plans to sell it just now, unless I see something else I really want to buy, at a price I want to pay for it.
My point is this: Timing is everything, even if it's just lucky timing.
My timing was adequately lucky with Netflix. As stated above, I purchased 24 shares at $80.14. Immediately afterward the stock continued its climb, and I felt ever-so clever. It got up into the $92 range within a week of my purchase. Had I sold at $92 then that would have been a nice 15% profit for a week's worth of investment.
I didn't sell, though. My theory on Netflix was that it would climb to $180 or so. So I held on to it.
And then it began to fall again. And fall. And fall. Four weeks after my purchase it closed under $64. Had I waited, I could have bought 30 shares at $64 each.
Here's the thing, though: When a stock is falling, you have no idea where it's going to hit bottom. With the benefit of hindsight I can now say that I should have waited and bought 30 shares at $64, or even that I should have sold at $92 and then turned around and bought more than 30 shares at $64, but that's looking back from now. From then, as it fell and fell and fell down past $64, I was mostly just kicking myself for being in such a hurry to buy at $80. I didn't once think about commiting more money and buying more shares at $64. I didn't know when it was going to hit bottom. It was entirely possible that it would keep going below $64 just like it had passed $80, and $75, and $70 on its way down. No sir, there was no way I was buying until it was on its way back up.
Hindsight is a wonderful thing, but unless you've got a time machine it's pretty much useless.
Well, Netflix is on its way back up. In fact, Netflix has been hanging out above that $92 mark again. Maybe now I should sell. Or maybe now I should hold on to it. I do think it will go up, maybe even to $180, still. That said, I don't think I want to buy more right now. If it goes below $75 again then maybe I'll sell my 3D Systems stock in order to buy some more Netflix. Maybe not. It all depends on what is at what price when.
My point, still, is that it's all about timing. It's all about buying low and selling high. Nowhere in this column have I discussed Netflix's fundamentals, or what caused all of its massive fluctuations. The fact is the market is going to fluctuate, and individual stocks are what make it fluctuate. The best we can do, as individual investors, is try to figure out the range in which a stock will fluctuate, and then take advantage of its movements within that range. Maybe I'm wrong about the upper end of Netflix's new range, and it will fluctuate between $64 and $100 for a while. If so, I can still make some money off of that. The only thing I don't know for sure is when it will be up and when it will be down.
This brings me back around to a stock I mentioned at the end of my previous column: MIND CTI Ltd (MNDO). This stock pays a nice dividend, and pays it annually. This last fact - the annual payment of dividend - lets us know that investors will be buying the stock (driving the price up in the process) as that annual dividend date approaches. We know, that is, when it will be up. Or, at least, when it will probably be up.
This is a good time to introduce my loyal reader(s?) to Dividend.com. Dividend.com is a website that tracks dividend-paying stocks and gives investors like us a few vital pieces of information. For MIND CTI, for instance, Dividend.com shows us that the dividend last year was $0.32 per share, that the dividend was declared on 2/16/2011, that the ex-dividend date was 2/24/2011, that the record date was 2/28/2011, and that the pay date was 3/21/2011.
What's with all the dates? I really should have gone over all this in my post on the subject of dividends last week. Oh well, we're here now. Let's break it down.
The declare date is pretty straightforward. On February 16th the company announced all the rest of the information. They declared what the dividend per share would be, when it would be paid, and to who.
Obviously the pay date is when the dividend is paid. The other dates are what determines who gets paid.
The ex-dividend date is the last date an investor can buy the stock and get paid the dividend.
The record date is the date an investor has to be holding the stock in order to get paid the dividend.
So. In order to collect last year's dividend, an investor in MIND CTI needed to buy the stock no later than 2/24/2011 and hold onto the stock through 2/28/2011. If an investor sold the stock on March 1st then they'd still get paid the dividend, but if an investor sold the stock on Friday the 25th of February, 2011 then that investor would get no dividend.
This last I don't completely understand. For instance, if someone sold the stock on Friday the 25th then who does get the dividend? Does anyone? Whoever owned the stock when the markets closed on 2/24 gets the dividend, unless he sells the stock on the 25th, in which case that seller doesn't get it, but neither does the buyer, because the buyer didn't own the stock on the 24th. So does the company just keep the money? I have no idea.
The only reason I bring up all these confusing dates is this: It might be interesting to see what happened to MIND CTI stock between and around all of these dates. Let's have a look at the Google Finance graph for MIND CTI for the last year and a half or so.
It looks kind of like a bell curve. In late 2010 the price was very low - under $2.00 - but then at the end of October 2010 it suddenly shoots up to almost $2.50, and then generally trends upward until the mid-February. Between February 11th and 18th it has another very steep spike upward, closing over $3.40 on the 18th, just after the declare date, but before the ex-dividend date.
That's all pretty straightforward. It makes sense that investors would let the stock languish for most of the year, then start buying as the dividend gets closer and closer. It also makes sense that the stock would fall after the record date. During March the stock dipped below $3.00, briefly.
What's kind of weird is the way the stock leaps back up after the dividend is paid. You'd think it would fall immediately, but instead it rises for a while before it begins its yearly fall. I think this second rise is explained by dividend reinvestment.
I own MIND CTI now, but it's the second time I've owned it. I originally bought 300 shares in October 2010 for $1.86 each, for a total investment of $558.00. I held onto my shares through the declare date, the ex-dividend date, and even the pay date of 3/21/2011. Then, on 3/22/2011 there was an automatic flurry of activity in my TDAmeritrade account.
First, I received my dividend of $0.32 per share, which came out to $96.00.
MIND CTI is a foreign stock, though. It's an Israeli software company, and the Israeli government took a hefty 20% chunk of my dividend away. Fine. That also happened automatically, leaving me with a net dividend of $76.80. Still not bad at all.
But wait! There's more! I have dividend reinvestment in place on my TDAmeritrade accounts. This caused my net dividend of $76.80 to be spent on 24.774 shares of MIND CTI at that day's price of $3.10, with no additional fee. The upshot is that my investment of $558.00 back in October of 2010 left me (after all things dividend) with roughly 325 shares of MIND CTI. I then sold all of those shares in early April of 2011 at $3.36 per share for a total of $1,081.20. After I subtract my initial investment and my TDAmeritrade fees for my initial purchase and my final sale then I ended up with a net profit of $503.22, which is a 90% profit.
Sweet!
If my timing had been slightly better then I could have sold those 325 shares for $3.49 each, or maybe even $3.55 each. Still, my timing was pretty good. I'm not going to complain.
In fact, I'm so happy with how that all turned out that I'm trying to do it again, but bigger. In September of 2011 I bought 1,600 shares of MIND CTI at $1.85 each. I hope to sell these shares, plus any others I get from dividend reinvestment, for at least $3.50 each sometime in the next 3 months, if my timing is right. It's all about timing, and luck, and dividends in this case.
The fact is, this could also go horribly wrong. MIND CTI could announce that they're not paying a dividend this year, or that they're paying a much smaller dividend than last year. If that happens then the stock price, which has climbed up to $2.20, could nosedive to $1.75 or below.
If it does, maybe I'll buy more of it. That's a good price, assuming it pays a good dividend someday. We'll see.
Anyway, this same phenomenon - price fluctuation around dividend dates - can be applied to any dividend-paying stock, however it seems to work most profitably in a case like this one where the dividend is paid annually. Stocks that pay their dividends quarterly don't seem to fluctuate nearly as much. My best guess is that the window between a quarterly pay date and the next declare date is just too narrow to allow a stock to cut its price and half and then come back.
There are also many, many stocks that pay no dividend. They're still going to fluctuate a bit around annual reports and quarterly reports and opinions and news items. Needless to say, none of these things has quite the anchoring effect that a regular dividend does.
That said, next week I'll try to identify a fluctuation range for a stock that pays no dividend and, so far, doesn't seem to have a ceiling price: Amazon (AMZN).
It was luck more than timing for me in October. I needed to sell something because I had decided to buy some stock in Netflix (NFLX). I looked over my portfolio and decided that my 100 shares of 3D Systems (DDD) stock had already made me a tidy profit. I had purchased my shares at $16 and they had gone up to $19. Mind you, I think 3D Systems will go to $25 someday, based on past performance, but past performance is no guarantee of future performance and all that jazz. More importantly I needed some cash if I wanted to buy Netflix.
Also, even if 3D Systems did go to $25 then that was an additional profit of 32% or so. However Netflix in late October was priced around $75, and I thought it could go to $180. That would be a profit of 140%, and a potential profit of 140% beats a potential profit of 32% all to pieces.
I decided to take the win. I sold my 3D Systems stock at $19 per share on the 26th of October. I bought 24 shares of Netflix at $80.14. I wanted to buy 25 shares at $75, but it was already on its way back up, so I decided to do 24 shares at the higher price, instead.
It turns out I could have waited. We'll get to that in a second. First let me tell what happened to 3D Systems' stock. It fell. On the 28th of October, just a couple days after I sold, it suddenly fell, closing at $16.20. Over time it fell even more for a while. I had gotten out just in time. I can't tell you why it fell. Press releases, internet chatter, and company reports look just as good before the fall as after. It may have simply been the market being weird. I don't know. Sometimes good timing is just luck.
Good timing is also paying attention, though. I kept watching the 3D Systems stock. I watched it fall and eventually I bought again. I still believe in 3D Systems, and I know a bargain when I see one. I bought 100 shares again, this time at $15.50. As of this writing it is flirting with a price of $19 again, so I'm likely to profit from that trade a second time. That said, I have no plans to sell it just now, unless I see something else I really want to buy, at a price I want to pay for it.
My point is this: Timing is everything, even if it's just lucky timing.
My timing was adequately lucky with Netflix. As stated above, I purchased 24 shares at $80.14. Immediately afterward the stock continued its climb, and I felt ever-so clever. It got up into the $92 range within a week of my purchase. Had I sold at $92 then that would have been a nice 15% profit for a week's worth of investment.
I didn't sell, though. My theory on Netflix was that it would climb to $180 or so. So I held on to it.
And then it began to fall again. And fall. And fall. Four weeks after my purchase it closed under $64. Had I waited, I could have bought 30 shares at $64 each.
Here's the thing, though: When a stock is falling, you have no idea where it's going to hit bottom. With the benefit of hindsight I can now say that I should have waited and bought 30 shares at $64, or even that I should have sold at $92 and then turned around and bought more than 30 shares at $64, but that's looking back from now. From then, as it fell and fell and fell down past $64, I was mostly just kicking myself for being in such a hurry to buy at $80. I didn't once think about commiting more money and buying more shares at $64. I didn't know when it was going to hit bottom. It was entirely possible that it would keep going below $64 just like it had passed $80, and $75, and $70 on its way down. No sir, there was no way I was buying until it was on its way back up.
Hindsight is a wonderful thing, but unless you've got a time machine it's pretty much useless.
Well, Netflix is on its way back up. In fact, Netflix has been hanging out above that $92 mark again. Maybe now I should sell. Or maybe now I should hold on to it. I do think it will go up, maybe even to $180, still. That said, I don't think I want to buy more right now. If it goes below $75 again then maybe I'll sell my 3D Systems stock in order to buy some more Netflix. Maybe not. It all depends on what is at what price when.
My point, still, is that it's all about timing. It's all about buying low and selling high. Nowhere in this column have I discussed Netflix's fundamentals, or what caused all of its massive fluctuations. The fact is the market is going to fluctuate, and individual stocks are what make it fluctuate. The best we can do, as individual investors, is try to figure out the range in which a stock will fluctuate, and then take advantage of its movements within that range. Maybe I'm wrong about the upper end of Netflix's new range, and it will fluctuate between $64 and $100 for a while. If so, I can still make some money off of that. The only thing I don't know for sure is when it will be up and when it will be down.
This brings me back around to a stock I mentioned at the end of my previous column: MIND CTI Ltd (MNDO). This stock pays a nice dividend, and pays it annually. This last fact - the annual payment of dividend - lets us know that investors will be buying the stock (driving the price up in the process) as that annual dividend date approaches. We know, that is, when it will be up. Or, at least, when it will probably be up.
This is a good time to introduce my loyal reader(s?) to Dividend.com. Dividend.com is a website that tracks dividend-paying stocks and gives investors like us a few vital pieces of information. For MIND CTI, for instance, Dividend.com shows us that the dividend last year was $0.32 per share, that the dividend was declared on 2/16/2011, that the ex-dividend date was 2/24/2011, that the record date was 2/28/2011, and that the pay date was 3/21/2011.
What's with all the dates? I really should have gone over all this in my post on the subject of dividends last week. Oh well, we're here now. Let's break it down.
The declare date is pretty straightforward. On February 16th the company announced all the rest of the information. They declared what the dividend per share would be, when it would be paid, and to who.
Obviously the pay date is when the dividend is paid. The other dates are what determines who gets paid.
The ex-dividend date is the last date an investor can buy the stock and get paid the dividend.
The record date is the date an investor has to be holding the stock in order to get paid the dividend.
So. In order to collect last year's dividend, an investor in MIND CTI needed to buy the stock no later than 2/24/2011 and hold onto the stock through 2/28/2011. If an investor sold the stock on March 1st then they'd still get paid the dividend, but if an investor sold the stock on Friday the 25th of February, 2011 then that investor would get no dividend.
This last I don't completely understand. For instance, if someone sold the stock on Friday the 25th then who does get the dividend? Does anyone? Whoever owned the stock when the markets closed on 2/24 gets the dividend, unless he sells the stock on the 25th, in which case that seller doesn't get it, but neither does the buyer, because the buyer didn't own the stock on the 24th. So does the company just keep the money? I have no idea.
The only reason I bring up all these confusing dates is this: It might be interesting to see what happened to MIND CTI stock between and around all of these dates. Let's have a look at the Google Finance graph for MIND CTI for the last year and a half or so.
It looks kind of like a bell curve. In late 2010 the price was very low - under $2.00 - but then at the end of October 2010 it suddenly shoots up to almost $2.50, and then generally trends upward until the mid-February. Between February 11th and 18th it has another very steep spike upward, closing over $3.40 on the 18th, just after the declare date, but before the ex-dividend date.
That's all pretty straightforward. It makes sense that investors would let the stock languish for most of the year, then start buying as the dividend gets closer and closer. It also makes sense that the stock would fall after the record date. During March the stock dipped below $3.00, briefly.
What's kind of weird is the way the stock leaps back up after the dividend is paid. You'd think it would fall immediately, but instead it rises for a while before it begins its yearly fall. I think this second rise is explained by dividend reinvestment.
I own MIND CTI now, but it's the second time I've owned it. I originally bought 300 shares in October 2010 for $1.86 each, for a total investment of $558.00. I held onto my shares through the declare date, the ex-dividend date, and even the pay date of 3/21/2011. Then, on 3/22/2011 there was an automatic flurry of activity in my TDAmeritrade account.
First, I received my dividend of $0.32 per share, which came out to $96.00.
MIND CTI is a foreign stock, though. It's an Israeli software company, and the Israeli government took a hefty 20% chunk of my dividend away. Fine. That also happened automatically, leaving me with a net dividend of $76.80. Still not bad at all.
But wait! There's more! I have dividend reinvestment in place on my TDAmeritrade accounts. This caused my net dividend of $76.80 to be spent on 24.774 shares of MIND CTI at that day's price of $3.10, with no additional fee. The upshot is that my investment of $558.00 back in October of 2010 left me (after all things dividend) with roughly 325 shares of MIND CTI. I then sold all of those shares in early April of 2011 at $3.36 per share for a total of $1,081.20. After I subtract my initial investment and my TDAmeritrade fees for my initial purchase and my final sale then I ended up with a net profit of $503.22, which is a 90% profit.
Sweet!
If my timing had been slightly better then I could have sold those 325 shares for $3.49 each, or maybe even $3.55 each. Still, my timing was pretty good. I'm not going to complain.
In fact, I'm so happy with how that all turned out that I'm trying to do it again, but bigger. In September of 2011 I bought 1,600 shares of MIND CTI at $1.85 each. I hope to sell these shares, plus any others I get from dividend reinvestment, for at least $3.50 each sometime in the next 3 months, if my timing is right. It's all about timing, and luck, and dividends in this case.
The fact is, this could also go horribly wrong. MIND CTI could announce that they're not paying a dividend this year, or that they're paying a much smaller dividend than last year. If that happens then the stock price, which has climbed up to $2.20, could nosedive to $1.75 or below.
If it does, maybe I'll buy more of it. That's a good price, assuming it pays a good dividend someday. We'll see.
Anyway, this same phenomenon - price fluctuation around dividend dates - can be applied to any dividend-paying stock, however it seems to work most profitably in a case like this one where the dividend is paid annually. Stocks that pay their dividends quarterly don't seem to fluctuate nearly as much. My best guess is that the window between a quarterly pay date and the next declare date is just too narrow to allow a stock to cut its price and half and then come back.
There are also many, many stocks that pay no dividend. They're still going to fluctuate a bit around annual reports and quarterly reports and opinions and news items. Needless to say, none of these things has quite the anchoring effect that a regular dividend does.
That said, next week I'll try to identify a fluctuation range for a stock that pays no dividend and, so far, doesn't seem to have a ceiling price: Amazon (AMZN).
15 January 2012
Dividends
I love stocks that pay dividends. I was all set to write a column about why, when I read someone else's. Click below to read another author's expansion upon the following points. The comments here are mine.
Companies that pay dividends usually have more money than they know what to do with. This is one of those statements that should be true, and as you look into dividend-paying stocks, try to make sure that it is.
Companies that pay dividends are often here to stay. Again, this should be true, and usually is true, but might not be. I like to look at the price-graphs for a stock I'm considering and see how long the stock has existed and how long it's been paying dividends. There are some stocks out there that kick out fat dividends to encourage investors and drive the stock price up, even if that company can't keep those dividends going over time. I invested about $500 in WWE (yes, World Wrestling. I'm not ashamed.) because it consistently paid a dividend with an annual yield of over 12%. It had paid its portion of that annual yield each quarter without fail for 3 years before I bought it. I had paid no mind to various blog-posts I had read wherein the writers claimed that there was no way that the company could keep paying out that much money each quarter. They were right, though, and the dividend was reduced by 2/3 almost immediately after my purchase, and the stock price dropped about 25% as a result. That said, the stock is here to stay, so maybe the truism in question is true after all.
Companies that pay dividends may even outperform while exhibiting an investor to a much lower risk profile -- especially if reinvested dividends are considered. Yes, yes, yes and yes. Typically, dividend-paying companies take fewer risks with money than companies that don't. Also, in volatile times the price of the stock is influenced by the dividend yield. On a bad day when all stocks are dropping in price, buyers will grab up dividend-paying stocks, keeping the price up, or at least keeping it from falling too far. Also, if a stock pays a decent dividend and those dividends are reinvested then it's okay if the stock price doesn't rise. It's even okay if it falls for a while. That just means that the dividends will buy the investor more shares than they would have if the price was static. Buy, hold, and reinvest until the price goes up.
I mentioned last week that my TICC stock was and is a dividend play. In September I bought 200 shares at $8 each. In the quarter since I bought it, the stock increased in price to nearly $9 before it paid a dividend of $0.25 per share. 200 x $0.25 = $50.00. That $50 was reinvested and now I have 205.568 shares of TICC. If the price had stayed at $8 then I'd have 206.25 shares.
Next quarter, instead of 200 shares paying $50 in dividends, I'll have 205.568 shares that should pay $51.39. Sweet!
Oh, and the price per share has gone up to $9.44 as of this writing. The upshot is that my total investment of $1,600.00 is now worth $1,940.56. Not bad for an investment of less than 4 months.
Half of the rest of my stocks pay dividends. ABB pays a little. BABB pays a lot. Both of them pay their dividends quarterly, which limits their volatility. MNDO, on the other hand, pays its surprisingly hefty dividend annually, which means that during a great deal of the year the price is low, and then it goes up around the time that the dividend is paid. This changes my strategy a bit for this stock, and it brings up the subject of timing. We'll talk about timing next week.
Companies that pay dividends usually have more money than they know what to do with. This is one of those statements that should be true, and as you look into dividend-paying stocks, try to make sure that it is.
Companies that pay dividends are often here to stay. Again, this should be true, and usually is true, but might not be. I like to look at the price-graphs for a stock I'm considering and see how long the stock has existed and how long it's been paying dividends. There are some stocks out there that kick out fat dividends to encourage investors and drive the stock price up, even if that company can't keep those dividends going over time. I invested about $500 in WWE (yes, World Wrestling. I'm not ashamed.) because it consistently paid a dividend with an annual yield of over 12%. It had paid its portion of that annual yield each quarter without fail for 3 years before I bought it. I had paid no mind to various blog-posts I had read wherein the writers claimed that there was no way that the company could keep paying out that much money each quarter. They were right, though, and the dividend was reduced by 2/3 almost immediately after my purchase, and the stock price dropped about 25% as a result. That said, the stock is here to stay, so maybe the truism in question is true after all.
Companies that pay dividends may even outperform while exhibiting an investor to a much lower risk profile -- especially if reinvested dividends are considered. Yes, yes, yes and yes. Typically, dividend-paying companies take fewer risks with money than companies that don't. Also, in volatile times the price of the stock is influenced by the dividend yield. On a bad day when all stocks are dropping in price, buyers will grab up dividend-paying stocks, keeping the price up, or at least keeping it from falling too far. Also, if a stock pays a decent dividend and those dividends are reinvested then it's okay if the stock price doesn't rise. It's even okay if it falls for a while. That just means that the dividends will buy the investor more shares than they would have if the price was static. Buy, hold, and reinvest until the price goes up.
I mentioned last week that my TICC stock was and is a dividend play. In September I bought 200 shares at $8 each. In the quarter since I bought it, the stock increased in price to nearly $9 before it paid a dividend of $0.25 per share. 200 x $0.25 = $50.00. That $50 was reinvested and now I have 205.568 shares of TICC. If the price had stayed at $8 then I'd have 206.25 shares.
Next quarter, instead of 200 shares paying $50 in dividends, I'll have 205.568 shares that should pay $51.39. Sweet!
Oh, and the price per share has gone up to $9.44 as of this writing. The upshot is that my total investment of $1,600.00 is now worth $1,940.56. Not bad for an investment of less than 4 months.
Half of the rest of my stocks pay dividends. ABB pays a little. BABB pays a lot. Both of them pay their dividends quarterly, which limits their volatility. MNDO, on the other hand, pays its surprisingly hefty dividend annually, which means that during a great deal of the year the price is low, and then it goes up around the time that the dividend is paid. This changes my strategy a bit for this stock, and it brings up the subject of timing. We'll talk about timing next week.
09 January 2012
What do I own and why?
On the right-hand side of the page (below the ad and the blog archive segment) is my standing list of stocks that I own. If you click on any of them then you will see that stock's Google Finance page (This blog is hosted by Google, and it seems only polite to default to their Finance pages). If your browser allows Flash then on that page you'll see, among other things, a nicely interactive chart that flags important events for that stock within the chart's timeline format. Important events include splits, dividends, and news items.
The news items may not be that relevant, though. I'm guessing that Google has some algorithm that chooses which news items to display for a given unit of time, and it's probably something simple like Most Popular and Company Name. For my 3D Systems stock, especially, I've found that news items sometimes have NOTHING to do with the stock itself. News items are sometimes about 3D television systems, for instance, but 3D Systems - the company - is in the rapid-prototyping business which is sometimes known as 3D printing.
For more complete and truly relevant news - and other important resources - I find myself continuing to use Yahoo Finance, even after years of trying other resources as they become available. Yahoo has one resource, in fact, for which I have yet to find a comparable substitute, and that is their Key Statistics page for any given stock. With that in mind, below is my list of stocks once more, but this time each link will take you to the Yahoo Finance Key Statistics page.
3D Systems Corporation (Public, NYSE:DDD)
ABB Ltd (ADR) (Public, NYSE:ABB)
BAB, Inc. (Public, OTC:BABB)
MIND C.T.I. Ltd. (Public, NASDAQ:MNDO)
Netflix, Inc. (Public, NASDAQ:NFLX)
Sigma Designs, Inc. (Public, NASDAQ:SIGM)
TICC Capital Corp. (Public, NASDAQ:TICC)
I'd like you to look at the Key Statistics pages for the first five stocks in my list, especially. As you do, you may notice that there are certain commonalities involving four items on each page: EBITDA, Net Income, Cash, and Debt.
EBITDA and Net Income are positive for these five stocks. This tells me that the stocks in question are actually profitable. They're making more money than they're spending. This seems like an obvious thing to look for in a stock, but a lot of really excellent stocks may still be in a startup phase where they haven't yet had a profitable quarter, or may be suffering under a lack of demand associated with the ongoing crisis and therefore not currently profitable. That doesn't make them bad stocks, necessarily, but right now I'm looking for a very low degree of risk. For this reason I prefer to limit myself to currently profitable companies.
It has recently come to my attention that Net Income is a better measure of this than EBITDA. EBITDA can be misleading, in fact. I still like positive EBITDA numbers, though, I just cannot justify this preference.
I also have some difficulty justifying my requirement that a company have more liquid capital than debt, which is what you can see by looking at the Cash and Debt amounts for my first five stocks. Again, it's a requirement I currently have because I am seeking to minimize risk, but it may be an entirely unreasonable requirement. My logic, though, is this: A company with substantial savings and relatively little debt is more likely to survive difficult times than a company with more debt.
I know that other investors are more comfortable with debt, and look for a healthy ratio of cash to debt, but what is a healthy ratio? I've heard everything from 1:5 to 1:20. For my purposes and in these interesting times I am trying to stick to 1:1 or greater whenever possible. It's a ridiculous requirement, but it's mine.
That said, the other two stocks in my list fail my requirements. Sigma Designs is not currently profitable and TICC has a cash to debt ratio of roughly 1:14. What's up with that?
Regarding Sigma Designs, the very short version is that it was a bit of an impulse buy. My advice: Avoid impulse buys.
TICC, on the other hand, was not an impulse buy. It was and is a dividend play. We'll talk about dividends next week.
In the meantime, let me know what you think. Do you have a suggested tweak to my Net Income and Debt requirements? Do you know of a better resource than the Key Statistics pages? If you do then we'll discuss.
UPDATE: Since the original publication of this post I have sold my Netflix shares in order to buy shares in Amazon. I've got one or two posts from late January about this, and one from early February
The news items may not be that relevant, though. I'm guessing that Google has some algorithm that chooses which news items to display for a given unit of time, and it's probably something simple like Most Popular and Company Name. For my 3D Systems stock, especially, I've found that news items sometimes have NOTHING to do with the stock itself. News items are sometimes about 3D television systems, for instance, but 3D Systems - the company - is in the rapid-prototyping business which is sometimes known as 3D printing.
For more complete and truly relevant news - and other important resources - I find myself continuing to use Yahoo Finance, even after years of trying other resources as they become available. Yahoo has one resource, in fact, for which I have yet to find a comparable substitute, and that is their Key Statistics page for any given stock. With that in mind, below is my list of stocks once more, but this time each link will take you to the Yahoo Finance Key Statistics page.
3D Systems Corporation (Public, NYSE:DDD)
ABB Ltd (ADR) (Public, NYSE:ABB)
BAB, Inc. (Public, OTC:BABB)
MIND C.T.I. Ltd. (Public, NASDAQ:MNDO)
Netflix, Inc. (Public, NASDAQ:NFLX)
Sigma Designs, Inc. (Public, NASDAQ:SIGM)
TICC Capital Corp. (Public, NASDAQ:TICC)
I'd like you to look at the Key Statistics pages for the first five stocks in my list, especially. As you do, you may notice that there are certain commonalities involving four items on each page: EBITDA, Net Income, Cash, and Debt.
EBITDA and Net Income are positive for these five stocks. This tells me that the stocks in question are actually profitable. They're making more money than they're spending. This seems like an obvious thing to look for in a stock, but a lot of really excellent stocks may still be in a startup phase where they haven't yet had a profitable quarter, or may be suffering under a lack of demand associated with the ongoing crisis and therefore not currently profitable. That doesn't make them bad stocks, necessarily, but right now I'm looking for a very low degree of risk. For this reason I prefer to limit myself to currently profitable companies.
It has recently come to my attention that Net Income is a better measure of this than EBITDA. EBITDA can be misleading, in fact. I still like positive EBITDA numbers, though, I just cannot justify this preference.
I also have some difficulty justifying my requirement that a company have more liquid capital than debt, which is what you can see by looking at the Cash and Debt amounts for my first five stocks. Again, it's a requirement I currently have because I am seeking to minimize risk, but it may be an entirely unreasonable requirement. My logic, though, is this: A company with substantial savings and relatively little debt is more likely to survive difficult times than a company with more debt.
I know that other investors are more comfortable with debt, and look for a healthy ratio of cash to debt, but what is a healthy ratio? I've heard everything from 1:5 to 1:20. For my purposes and in these interesting times I am trying to stick to 1:1 or greater whenever possible. It's a ridiculous requirement, but it's mine.
That said, the other two stocks in my list fail my requirements. Sigma Designs is not currently profitable and TICC has a cash to debt ratio of roughly 1:14. What's up with that?
Regarding Sigma Designs, the very short version is that it was a bit of an impulse buy. My advice: Avoid impulse buys.
TICC, on the other hand, was not an impulse buy. It was and is a dividend play. We'll talk about dividends next week.
In the meantime, let me know what you think. Do you have a suggested tweak to my Net Income and Debt requirements? Do you know of a better resource than the Key Statistics pages? If you do then we'll discuss.
UPDATE: Since the original publication of this post I have sold my Netflix shares in order to buy shares in Amazon. I've got one or two posts from late January about this, and one from early February
02 January 2012
Welcome to YearTrader Weekly
Why YearTrader?
Well, because I am not a DayTrader who often buys and sells the same stock within a single day. I have on rare occasion been a MonthTrader and on more rare occasions been a WeekTrader. Historically, though I have been a YearTrader, in that I do often buy and sell a given stock within a year. That said, for a very few stocks I am a DecadeTrader (in that I have so far held those stocks for more than a single year, so I must move out to the next unit of time measurement. Who knows, maybe I'll turn out to be a CenturyTrader for some stocks and just will them to my heirs).
I am not a financial professional. I have never worked at a bank, much less at a trading house. I'm making up my investment strategy or strategies as I go. I love giving advice, but that doesn't mean you should take it. Free advice is worth exactly what you pay for it.
I have learned the hard way that even the most careful and well-researched trading in stocks is not risk-free. If someone tells you an investment is risk-free then keep hold of your wallet and run away.
Because of the inherent risk, my stock trading is not my only investment in the future. Nor is it my biggest. Mostly my retirement plan revolves around the equity in the house, my 401k, a rollover IRA from a previous 401k, and the occasional lottery ticket.
I have been trading stocks for a few years now. I've made a lot of mistakes during that time, but because each individual investment I had made was a maximum of $500 then the damage has been limited. At the moment the net result of all of those small investments is that I have broken even. My good bets have been offset by my bad bets, but I think I've learned from my mistakes. I'll probably make more mistakes in the future, but hopefully they'll be NEW mistakes.
A few months ago I took an action that I don't think was a mistake, but we'll find out together as this blog progresses. I took a portion of my rollover IRA and began truly managing it myself, utilizing all that I have learned from my previous stock dabblings. That is, I took approximately $12,500.00 and have invested it in a number of stocks. The stocks in question are listed on the right-hand side of this page. My minimum investment in each stock is $1,500.00, so I'm working on another level, now. For serious investors it's still not that impressive a level, but it's mine.
On the rare occasion that I sell something I'll let you know, and then I'll let you know what I decide to buy with the proceeds, and why. Whenever I mention a stock by name I will disclose any position I have in that stock.
When I'm considering a specific stock for purchase then I will be discussing the pros and cons of that purchase as I understand them. I will also be asking for feedback. If I shouldn't buy something I'd certainly appreciate someone telling me so, and why.
Look for a new column no later than each Monday morning in 2012. The next one should be on 9 January. At that time I plan to go over what my relatively risk-averse self looks for in a stock these days.
Meanwhile, please give me feedback. How did you find this blog and why are you reading it? What do you hope to learn? Hopefully we can learn something together.
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