Missed it by THAT much

I think I missed an opportunity to sell a stock and make a profit.

Last week 3D Systems (DDD) shot up in price, briefly, to $25.77.  I tried to sell.  I did some math and lowered the price of the sell order I already had in place.  I brought my asking price per share down to $25.78, which would net me a 65% profit on the buying and selling of that particular stock, but it appears I should have gone lower.  3D Systems didn't reach $25.78, and it has been declining in price since then.  As of this writing it's less than $22.50 a share.  Looks like I missed an opportunity window.

I've bought, sold, and bought stock again in 3D Systems.  I've mentioned it in previous columns.  Let me recap in a different way, though, for the visual folks out there.

I'm not kicking myself too hard, though.  I tell myself that if 3D Systems went over $25 recently then it probably will again, someday, and then I'll sell, take my profits, and reinvest them when I get the chance.

The worst case scenario, moving forward, is that the price goes back down to $15 or $16 before coming back up over $25.  That would be a little difficult, emotionally, but if my IRA makes a nice profit at the end then I'll find a way to cope.

It's just as likely, though, that the recent upward price trend for 3D Systems will continue.  And if that happens then maybe $25.78 is too low an asking price.  Maybe I should put my asking price back to $31.20.  At that price I would make a 100% net profit, which seems like a nice goal to have.

Or maybe I should leave it at $25.78 and let it ride.

For now I seem to be letting it ride.  This has been my disclosure update, then.  It's official.  I hope to sell my 3D Systems stock in the near future, for $25.78.  I'll let you know if that changes.

Waiting

I hate waiting.

If I know I'm going to be waiting for something or someone then I try to make sure I have a paperback, although these days I really make sure I have my iPod Touch.  If I'm somewhere with WiFi then I can surf the latest news, and if I'm somewhere without WiFi then I can listen to one of the many audio programs I have saved, or even read a little bit of classic (and therefore free) literature on my Kindle app.

Waiting for one of my stocks to go up in value to the point at which I am ready to sell it, though, isn't like waiting in a waiting room or waiting to meet my wife at a restaurant or waiting for a bus.  It's like waiting at a dance for someone to ask onto the floor.  It's an alert, vigilant, opportunistic waiting.  It's watching and waiting.  It's waiting to spring into action, should action be appropriate.

I wonder if it's like hunting?  Maybe it is.  I'm tempted to run with a Hunting metaphor for a while.  The rush of Success and its attendant Bounty.  The gut-wrenching Emptiness of Failure and the attendant knowledge that one's  future is Uncertain . . . .  That's if one is hunting for one's food, of course.

Maybe it's like fishing.  Or maybe it's like a stakeout.  Any of these metaphors would be more useful to me  if I was a hunter, or a fisherman, or a detective . . . .

The point is:  I hate this vigilant waiting, but it's what I'm doing right now.

While I'm waiting, I'm researching.  I'm looking for undervalued stocks that I'm certain will be better valued in the future.  Two weeks ago, just beginning to wait, I cast my gaze upon Research In Motion (hereafter often referred to by its ticker-symbol of RIMM) and it became the subject of that week's column.  At the time I intended to write about my decision-making process regarding RIMM in even more depth, but my self-imposed deadline arrived and I'd already written everything that really mattered.  I contented myself with the promise that I would write more about RIMM, soon.

Soon is now, and now I want to draw my readers' attention to the Book Value of RIMM.

Here's a screen-grab from Yahoo's Key Statistics page for RIMM.  I've circled in RED the item I want to draw your attention to:  The Price per Book.

The Price per Book is literally the price of a share of the stock divided by the book value of a share of stock.  If you go directly to the Key Statistics page you can see that the book value of a share of RIMM is $19.77.  It's near the bottom of the page, so I can't do a screen-grab that shows the book value and also still says Research In Motion, but that's okay, the Price per Book is what I want to expound upon, anyway.

Still, before we get into some simple math, it's important that we understand the book value per share.  It's like the Blue Book value of a car.  Someone somewhere (either an analyst at a company called Capital IQ, or an analyst in the finance department of RIMM, or both) has done some calculations on all the assets of RIMM and come up with a dollar-amount of what it's worth - the book value.  Divide the book value by the number of shares outstanding in the stock and you get the book value per share.

Okay, so how does Yahoo's Key Statistics page calculate the Price per Book?

The price of the stock, in nice bold numbers at the top of the screen-grab, is $15.07.  Grab your calculator and divide $15.07 by 19.77 and you get . . . something that is not quite 0.78.  I'm coming up with 0.762.  What is up with that?

Here's what's up:  Yahoo's Key Statistics page is not burdened with the task of updating the Price per Book every second of every trading day as the price changes.  Instead it takes the price as of the beginning of the most recent trading day and uses that in its calculations.  This means that even though I'm writing this on President's Day and the markets have been closed for three bloody days, Yahoo is using RIMM's opening  price of $15.39 on Friday the 17th in order to calculate the Price per Book.

Divide $15.39 by 19.77 and you get 0.778.  That's more like it.

The point, though, is that as of this writing the Price of a share of RIMM is less than the Book value of a share of RIMM, meaning the Price per Book is less than 1.

Why do I care?  Because there's not a much better indicator out there that a stock is under-valued then the fact that it's trading for less than it's book value, and I'm looking for under-valued stocks.  It's like looking for houses that are selling for less than they were appraised for - not too difficult to find just now.  Or maybe it's like looking for cars that are priced under their Blue Book value.

Of course, if a car is priced significantly under its Blue Book value then the first thing a potential buyer should ask is "What's wrong with it?"

In a previous column I covered what's wrong with it.  The company's market share has tanked, and until the Blackberry becomes a serious competitor in the SmartPhone market then it's not going to get any better.

That said, the Blackberry does have its niche in the communications ecosystem.  It may never grow beyond its niche, but if it does at least hold onto the niche it has then the price of Research In Motion stock should come back up to book value one of these days.  It's not like RIMM isn't making money.  Look at the Key Statistics page again.  RIMM makes billions of dollars in Net Income each year, and is currently debt-free.

It looks like a great buy.  I want to know more.  Specifically, I want to know how the book value has been fluctuating over time.  Has the book value been declining along with the price?

Fortunately, there's a site that can tell us what the book value of RIMM has been over time: ycharts.com.  It's a site that I find occasionally handy.  It offers all kinds of convenient graphs of historical data for a given stock.  Some if it, like Operating Margin, you have to be a paying subscriber to ycharts in order to view.  Some of it - like book value - you can look at for free.  Have a look at this:

This is a graph of Research in Motion's book value per share over the last 10 years.  I'm not sure why ycharts doesn't have data for May of 2008, but because it doesn't there's a gap for a couple of quarters.

We can see from this graph, though, that RIMM has been consistently growing in book value per share.  This speaks well of the company's management team, or former management team, anyway.  The management at RIMM has recently gone through a major shake-up.  Of course, it seems that investors weren't thrilled with the old management.  Investors are evidently more concerned about the price than about the value.

It's possible that the new CEO is just what Research In Motion needs, but for now he's unproven in that role. He'd been COO for some time, though, prior to becoming CEO.

For now, the upshot is that nothing has changed for me.  I'm still vigilantly watching the stocks I own to see when I'm ready to sell, and I'm still looking for stocks that I'm convinced I want to buy.  I'm not convinced that Research In Motion is a great buy, but I'm also not convinced that it's not.  I'll be watching it.  And I'll be waiting.

UPDATE:  After some consideration I have clarified my thoughts on under-valued stocks.  Please see this more recent post for further ruminations on price per book.

Skip Week

I think I'm giving this week a miss.  I want to write about Profit Taking and High Frequency Trading and how I think it's basically evil and distorts the markets and leads to disasters like the Flash Crash, but I can't seem to bring together my thoughts in any coherent way.

For that matter, I have to admit that I'm as guilty as anyone of buying stocks that I don't plan to hold onto for years and years.  I do my own profit taking with some frequency, I suppose, just not crazy-fast computer-driven only-own-it-for-a-few-seconds frequency.  I engage in Low Frequency Trading.

It comes down to the fact that I'm pursuing a mix of strategies.  Some stocks I'll hold for a very few months and sell, not when I think it's an especially good time to take some profits out of that particular position, but because something else I want to buy comes to my attention.  I love a bargain.  When I see a new bargain then I'm apt to sell a stock that was once a bargain but has become clearly profitable while I sat on it.

That said, I do have one stock that I plan to sell in the next couple months and I don't know, as of this writing, what stock or stocks I will buy with the proceeds.

I've written before about how I try to take advantage of MIND CTI (MNDO) and its annual dividend to make a nice, annual profit for myself.  It's not exactly the buy and hold strategy that I'm enacting with the few shares of Amazon (AMZN) that I've purchased.

My point, though, is that I know (or I think I know) that I'm going to be selling my shares in MIND CTI in March or April, and that this is a clear exercise in profit taking, albeit infrequent profit taking, so I'm having trouble writing about what exactly my moral position is in all this.

Because it seems to me that the stock market ought to be all about investors enacting ye olde buye and holde strategy.  But that's not really what I do, usually.  No, for me it's more like Flip This Stock.  Buy it.  Let it appreciate.  Sell it.

Sometimes the Let It Appreciate step is just a couple months.  Sometimes it's six months.  Sometimes it's years.

The conclusion I seem to be arriving at is that one is not necessarily better than another.  Different hold times are appropriate for different stocks, and for different investors.  But that means I don't get to complain about the strategies of other investors and institutions.

So.  Nothing insightful here this week.  Sorry.

I am going to be spending some time trying to figure out what to buy next, though.  Last week's rambling about Research In Motion (RIMM) was symptomatic of this.  I may ramble about that particular possibility some more in the future.  More likely I'll explore some other possible investments with you.

Because I know I'll be buying something in the next couple of months.  I just don't yet know what it will be.

Fun with Google Finance Portfolios

I use Google Finance to keep track of both my actual investments and my potential investments.  This has resulted in the creation of a great many Google Finance portfolios.  As of this writing I have 15.  One of these portfolios consists of the stocks listed on the right-hand side of this blog.  Here’s a screen-grab from that portfolio:

I have listed the companies in my portfolio in alphabetical order by name before doing the screen-grab, as shown by the down-arrow by the Name heading.  Portfolio contents can also be listed by symbol, by last price, etc.  There are different reasons for listing the contents of a portfolio in different ways.

The screen-grab is of the Performance view.  That’s the only view I ever use on my Google Finance portfolios.  There are probably excellent reasons why I should be looking at some of the other views from time to time, but I find that the Performance view meets my needs.

Whenever I add a new stock to a Google Finance portfolio I am given the option of entering transaction data, i.e., the number of shares and the price per share.  The Performance view then calculates the cost basis for each investment, the market value of each, and the amount and percentage gained or lost on each investment.  Gains are in GREEN.  Losses are in RED.

You can see, for instance, that I own 200 shares of Sigma Designs (SIGM).  The cost basis is $1,600.00.  That comes from the fact that I paid $8 per share (200 x $8 = $1,600).  At the time that I took this screen-grab, shares of Sigma Designs were $6.04 each.  Google has conveniently calculated the amount and percentage lost on that particular investment.

I use a few other Google Finance portfolios to track my various investments.  Another portfolio, for instance, consists of several ETFs in which I’m invested through a rollover IRA.  Yet another consists of four funds in which I regularly invest through my employer’s 401K  program.  You get the idea.

The majority of my Google Finance portfolios, though, consist of stocks that I do not currently own, but that I’m keeping under some kind of consideration.  I have portfolios named Previous Profit and Previous Loss, for instance, in which I track stocks that I have sold and the price at which I sold them.  This is all shear morbid curiosity.  These portfolios allow me to see, at a glance, how much my investments in those stocks would be worth if I had NOT sold.  I don’t actually look at those portfolios much, though, which is probably for the best.

I look at some of my consideration portfolios a great deal, though.  Recently I’ve created two new Google Finance portfolios that I’ve named Cashful Buy and Cashful Sell, and I give those a substantial number of page-views.  Here’s a screenshot from Cashful Buy:

Cashful Buy is used to track companies that are both full of cash (that is, they have more cash than debt according to their most recent quarterly reports) and have positive net incomes.  They have money, and they’re making more of it.  I like that in a company.  I don’t actually own any stock in these companies as of this writing, though, so instead of listing multiple shares of each company, I list only 1 share of each, with a cost basis that is essentially an educated fantasy of mine.  Google, then, will conveniently list my fantasy price per share as the cost basis for that investment.  I won’t have to do the math, then, to try to figure out the price per share at which I wanted to buy when I added it to the portfolio.  It’s right there on the page, with convenient gain or loss information as well.

Here’s a screen-grab from Cashful Sell:

Cashful Sell is used to track THE EXACT SAME companies that are in Cashful Buy, however instead of listing fantasy purchase prices for the stocks in question, I have listed fantasy sale prices.

In both cases the prices are meant to be attainable.  Likely, even.  Possible, at least.

For both screen-grabs, I listed the companies in descending order by percentage gain.  For both screen-grabs this left Research In Motion (RIMM) listed at the top of each portfolio.  Let us then discuss Research In Motion, the purveyor of the Blackberry mobile device.  Here’s yet another screen-grab:

The graph illustrates the fact that it has not been RIMM’s best year ever.  The Blackberry used to be the must-have device for the professional on the go.  Now the preferred device is an iPhone or perhaps some kind of Android phone.  These devices aren’t as secure, perhaps, as the Blackberry, but lately that does not seem to be an issue for most consumers.  As a result, RIMM marketshare has waned.  The stock has dropped significantly from its 52-week high of $70.54.  For the last 3 months RIMM hasn’t been above $20 a share.

If you scroll up and look at the Cashful Buy screen-grab again, you’ll notice that $20 is my fantasy price for RIMM, but since RIMM is, as of this writing, at $17.21 then that fantasy pales in comparison to reality.  This is reflected in the Cashful Buy screen-grab.  RIMM is the only stock listed in that portfolio that reflects a negative gain.

It’s very useful to be able to tell, at a glance, which stocks, of a group of stocks one is considering, are currently priced below the point at which one might consider purchasing.

If I had any reason to believe that RIMM would regain its marketshare in the near future (or, indeed, ever) then I would be very justified in snapping up some shares.  I don't, though.  I have some reason to believe that RIMM might recover, but I have no reason to believe that it will.

From what I’ve read, RIMM is biding its time, waiting for a serious mobile-device-security-concern that will drive consumers back to the Blackberry.  I suppose such a thing could happen.  I’m not sure that it will happen soon, though (or, indeed, at all) and so I have no plan to purchase any shares in RIMM at this time.

If something were to happen, though, that would drive up RIMM's marketshare then it seems justifiable to believe that the price of the stock could easily increase to $60 a share or more.  It was above that price just a year ago.  Technically RIMM has been above that price for most of the last 3 years.  This is the reason that $60 is my fantasy sell price over in my Cashful Sell portfolio.  It's an attainable goal.

Looking at my Cashful Sell portfolio, then, I can see at a glance that RIMM's current price is 71% below my fantasy sell price, and that this is a greater percentage below the sell price than any other Cashful stock under consideration.  Another way of putting this, then, is that RIMM has the greatest potential gain of all of the stocks in that portfolio.

Potential gain isn't guaranteed gain, though, which is why I still have no intention of buying shares of RIMM.  Buying RIMM now would be a gamble.  A gamble that might, conceivably pay off very well, but also one in which the gambler runs a significant risk of losing all of his bet.  The only reason I'm discussing RIMM at such length is because it happens to hold such an interesting position in both of my Cashful portfolios.  The potential profit is fascinating, and warrants further attention and study.

We'll discuss methods of further study next week, and we'll continue to use RIMM as our object lesson, unless something much more interesting comes up in the next week or so.  

Disclosure Update

Mission accomplished.  I sold my Netflix stock at a 50% profit, including fees, and then turned around and bought as many shares of Amazon as I could.  Specifically, I purchased 17 shares of Amazon at $174.25 each.

The list of stocks on the right-hand side of the page has been updated accordingly.