Last week I wrote that my cunning plan was working. This is no longer, strictly speaking, true.
I had decided to sell my 1,600 shares in MIND CTI Ltd (MNDO) for $2.51 per share. There's only one problem: No one wanted to buy at that price. The highest price the stock has managed to attain since my decision was $2.44.
So I didn't sell. Since then the ex-dividend date and record date for MIND CTI has passed. This means that if someone were to buy the stock today then that buyer would NOT get the healthy annual dividend that one could get if one bought the stock before the 12th of March.
Here's a little something I wrote in the previous column:
If I don't sell by then, though, I'm going to cancel my sell order for 1,600 shares, take the dividend on the pay date of March 28th, automatically invest that dividend in 100+ additional shares, and then put in a new sell order for 1,700+ shares (possibly for as low as $2.36 a share).
That's the plan. And I was feeling pretty good about the plan. Until last Friday when MIND CTI closed at $1.88 a share, after an intra-day low of $1.86. That's not much more than I paid for it.
My plan of selling for $2.36 a share now seems overly optimistic.
I've sat down and done the math. My break-even point is $1.69 a share. If the stock is at that price when my dividend is automatically reinvested then I'll get another 170 shares, giving me a total of 1,770 shares. If I can sell those shares for $1.69 each then I'll make a net profit (after all my trading fees, etc.) of $10.
That's not impressive, but at least I'm not losing money.
The upshot is that my sell order has been cancelled for now. I'm going to get my additional shares and then re-assess. If I can sell my shares in MIND CTI Ltd for $2.36 or more then I'll definitely go ahead and cash out. If the price drops below $1.69 a share then I definitely won't cash out. At that point I'll just hold on to my shares until next year's dividend, probably.
I don't know what I'll do if the price is halfway in-between.
The dividend should be paid no later than the 29th, and I'll end up taking some kind of action - or inaction - no later than the 30th. I'll let you know what ends up happening with my cunning plan.
In the meantime I'll try to find something else about which to write between now and then. Questions and comments are always welcome.
12 March 2012
07 March 2012
My Cunning Plan Is Working
Mostly. Kind of.
The plan is this: Do what I did in Fall 2010 and Spring 2011, but moreso.
In the Fall of 2010 I bought 300 shares of MIND CTI (hereafter referred to by its ticker symbol of MNDO) for $1.86 per share. In the Spring of 2011, MNDO rose to $3.57 a share and also paid a dividend of $0.32 per share. I sold and netted a 90% profit, once all was said and done.
In order to do the same thing, but moreso, I just needed to buy more shares this year.
Accordingly, in the Fall of 2011, I bought 1,600 shares of MNDO for $1.85 per share. It’s now Spring of 2012 and MNDO has been generally rising. At one point in the last month it was $2.78 per share.
I probably should have sold then. But I didn’t know then what I know now. To wit:
MNDO recently announced their annual dividend. This year, though, instead of $0.32 per share, the dividend is going to be $0.24 per share. This year’s dividend is 75% of last year’s.
But wait, there's more! MNDO is an Israeli company, and Israeli taxes are taken out of the dividend before that dividend gets near the shareholder. Last year the tax was 20%. This year it's 25%. Oy.
Once the taxes are taken into account, this year's practical dividend is 70.3% of last year's. Instead of rising to $3.57 a share, then, it’s reasonable to assume that MNDO will only rise to about 70% of that amount, AKA $2.51 per share.
And that still rocks, of course. But I’m not going to net a 90% profit. Instead I’ll probably be netting a 35% profit.
I could take some risk with the timing of the dividend payment, dividend re-investment, and the sale of my additional shares as a result of the aforementioned dividend reinvestment and maybe, just maybe, net a 36% profit if it all goes perfectly, but more likely under this scenario I’ll end up reducing my profit when all does not go perfectly.
With all that in mind, then, I’m modifying my sell order for my MNDO shares. I’m planning to sell at $2.51, and I'm willing to sell before the stock goes ex-dividend on Monday March 12th.
If I don't sell by then, though, I'm going to cancel my sell order for 1,600 shares, take the dividend on the pay date of March 28th, automatically invest that dividend in 100+ additional shares, and then put in a new sell order for 1,700+ shares (possibly for as low as $2.36 a share).
I might make more money after taking the dividend, but it's a bit more work, and I have to have my money tied up in this investment a little longer, meaning that I might miss another opportunity.
For instance, RadioShack(RSH) has just announced a reasonably sweet quarterly dividend, but the ex-dividend date is March 14th. If I have to leave my investment in MNDO alone until the end of March then RadioShack's dividend is an opportunity I'll definitely miss.
RadioShack is not the only thing I'm thinking about buying, and I'm not planning to put all of my eggs in one basket, anyway. Let me refine my thinking about the various baskets under consideration and I'll write about them in the near future.
Of course, I’ll not be deciding anything for certain until I sell my shares in MNDO. Without cash in hand all I’m doing is dreaming of the various baskets in which I might invest. When I’m taking action in the waking world, though, then I’ll let you know what those actions are.
As of now, though, I've reduced my sell order for MNDO to $2.51 a share.
The plan is this: Do what I did in Fall 2010 and Spring 2011, but moreso.
In the Fall of 2010 I bought 300 shares of MIND CTI (hereafter referred to by its ticker symbol of MNDO) for $1.86 per share. In the Spring of 2011, MNDO rose to $3.57 a share and also paid a dividend of $0.32 per share. I sold and netted a 90% profit, once all was said and done.
In order to do the same thing, but moreso, I just needed to buy more shares this year.
Accordingly, in the Fall of 2011, I bought 1,600 shares of MNDO for $1.85 per share. It’s now Spring of 2012 and MNDO has been generally rising. At one point in the last month it was $2.78 per share.
I probably should have sold then. But I didn’t know then what I know now. To wit:
MNDO recently announced their annual dividend. This year, though, instead of $0.32 per share, the dividend is going to be $0.24 per share. This year’s dividend is 75% of last year’s.
But wait, there's more! MNDO is an Israeli company, and Israeli taxes are taken out of the dividend before that dividend gets near the shareholder. Last year the tax was 20%. This year it's 25%. Oy.
Once the taxes are taken into account, this year's practical dividend is 70.3% of last year's. Instead of rising to $3.57 a share, then, it’s reasonable to assume that MNDO will only rise to about 70% of that amount, AKA $2.51 per share.
And that still rocks, of course. But I’m not going to net a 90% profit. Instead I’ll probably be netting a 35% profit.
I could take some risk with the timing of the dividend payment, dividend re-investment, and the sale of my additional shares as a result of the aforementioned dividend reinvestment and maybe, just maybe, net a 36% profit if it all goes perfectly, but more likely under this scenario I’ll end up reducing my profit when all does not go perfectly.
With all that in mind, then, I’m modifying my sell order for my MNDO shares. I’m planning to sell at $2.51, and I'm willing to sell before the stock goes ex-dividend on Monday March 12th.
If I don't sell by then, though, I'm going to cancel my sell order for 1,600 shares, take the dividend on the pay date of March 28th, automatically invest that dividend in 100+ additional shares, and then put in a new sell order for 1,700+ shares (possibly for as low as $2.36 a share).
I might make more money after taking the dividend, but it's a bit more work, and I have to have my money tied up in this investment a little longer, meaning that I might miss another opportunity.
For instance, RadioShack(RSH) has just announced a reasonably sweet quarterly dividend, but the ex-dividend date is March 14th. If I have to leave my investment in MNDO alone until the end of March then RadioShack's dividend is an opportunity I'll definitely miss.
RadioShack is not the only thing I'm thinking about buying, and I'm not planning to put all of my eggs in one basket, anyway. Let me refine my thinking about the various baskets under consideration and I'll write about them in the near future.
Of course, I’ll not be deciding anything for certain until I sell my shares in MNDO. Without cash in hand all I’m doing is dreaming of the various baskets in which I might invest. When I’m taking action in the waking world, though, then I’ll let you know what those actions are.
As of now, though, I've reduced my sell order for MNDO to $2.51 a share.
04 March 2012
Further Ruminations on Book Values
I want to follow up on a column I wrote a couple of weeks ago in which I stated that a stock priced below its book value is most likely under-valued. The implication of that statement is that such a stock is a great buy, and therefore I or you or someone should snap up such a great bargain while it's possible to do so.
In the column in question I also implied that a potential investor should ask what is wrong with a stock priced below book, so technically I covered the need to be cautious, but upon further consideration I wish to make a couple of clear, concise statements:
The reason for this sudden outburst of clarity is that I have, in the past, bought stocks because they were under-valued, and it didn't work out terribly well for me. I don't want to give my readers the idea that this is an investment strategy that I still actively follow.
At least, I don't think I do. For my most recent investments I don't know, off the top of my head, what the price per book was for each of them at the time of purchase.
But this is the age of the inter-tubes, and with a little research I've come up with the following:
In the column in question I also implied that a potential investor should ask what is wrong with a stock priced below book, so technically I covered the need to be cautious, but upon further consideration I wish to make a couple of clear, concise statements:
- Don't buy a stock just because it's cheap.
- Don't buy a stock just because it's priced below book.
The reason for this sudden outburst of clarity is that I have, in the past, bought stocks because they were under-valued, and it didn't work out terribly well for me. I don't want to give my readers the idea that this is an investment strategy that I still actively follow.
At least, I don't think I do. For my most recent investments I don't know, off the top of my head, what the price per book was for each of them at the time of purchase.
But this is the age of the inter-tubes, and with a little research I've come up with the following:
The Book Value in the chart above is the book value per share as of the most recent quarterly report before the day I purchased my shares. In some cases the book value has changed since that time.
Most notably, the book value for Sigma Designs (SIGM) is significantly lower, now, than it was when I bought it. For that matter, so is the price per share. As of this writing the book value is $8.13 per share, but the price is $5.52 per share. The upshot is that the price per book is about the same now as it was then.
Basically, the most "under-valued" stock that I purchased has been the biggest loser for me. The only loser, actually. All the rest of the stocks in the chart above have performed quite well. The "bargain" stock hasn't.
Upon reflection, the least I can do is try to warn my loyal readers - both of them - away from a course of action to which I may have inadvertently led them. Hence the clarification.
Caveat emptor, and let's be careful out there.
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