Gamestop

In my column Sunday night I revealed that I had some cash in my IRA that was waiting for the right investment to come along.  I had placed an order for Verizon Communications Inc.(NYSE:VZ) at $46.53 a share, with the expectation that VZ was not likely to go that low.  It was a placeholder order, really.

Yesterday VZ very nearly went that low.  It was down to $46.58 at some point.

However, another opportunity arose.  Or descended, perhaps. 

GameStop Corp. (NYSE:GME) is a stock that I had been looking at a year or so ago.  Its financials are healthy.  It's making money.  I know who they are and what they do.  I've bought gift-cards for nephews from Gamestop, and when I needed a different cable to attach the Wii to my new flat-screen I was able to get a used cable from Gamestop for a fraction of what it would have cost me at Best Buy.

I remember staring at GME shares in late 2012 and wondering why the stock was priced under $30, especially when it was paying a $0.25 dividend every quarter.  It was on my list of equities to buy if I had any cash on hand.  Back then I had my money tied up in equities I wasn't prepared to sell, or other opportunities came along that seemed, at the time, better than GME.

Then GME went on a tear in 2013, eventually topping out at over $57 a share in November - just 2 months ago.  Using 20/20 hindsight I wrote GME off as another opportunity missed.

Over the last couple of months the stock has come down a bit, and has fluctuated between $45 and $50 per share.  It hadn't come down far enough to really interest me, though.  Until yesterday.

Yesterday GME took a roughly 20% dive from its Monday close of $45.31 down to a Tuesday intra-day low of $36.10 per share.

Why?  Software sales are down.  This is a long-term concern.  The newest generation of gaming consoles allow gamers to download software directly from the manufacturer to the machine, meaning fewer software sales for GME.  It's a disruption for GME's business model.

GME is a disruptive business itself, though.  Used / resale is an adaptation to the market, and I suspect GME will adapt further as necessary.

Also, the used / resale space may not be sexy and may not be ultra-profitable, but it's still adequately profitable for now.  New bookstores may be dying, but used bookstores can make a living.  The same goes for used music stores.

Furthermore, GME sells hardware, and hardware sales this holiday season were up.  They sold a lot of next generation consoles - consoles that are ultimately trying to put brick-and-mortar stores out of business, true.  But GME is doing well selling the consoles and the accessories.

There is some legitimate concern about GME's ability to remain a going concern in the long run, and for that reason I don't plan to hold onto this stock forever.  I do think, however, that concern about long-term viability was already priced in, and that's what had brought GME stock back down to $45 a share.

I decided to buy.  And I had the cash.  So I did.

I purchased 115 shares of GME at $36.21 each.  It costs me $9.99 to buy and $9.99 to sell, so whenever I sell GME then I need to make at least $19.98 in profit in order to break even.  That makes $36.39 the break-even point for my 115 shares of GME.  Of course, if I still have the stock in March and it pays $0.275 per share in dividends then my break-even point goes down to $36.12 or so.

Regardless, for now my sell order is in for $45 a share.  I think the market has over-reacted on this one, and that there will be a bounce-back.

Of course, I could be wrong.  Welcome to the excitement of investing.

Sold CLCT

My previous post included the following quote:

I seldom have money in my investment accounts that's not already at work.

Well, for once, this is not the case.  Friday morning one of my stocks sold, albeit on auto-pilot.

When I purchased Collectors Universe, Inc.(NASDAQ:CLCT) a couple of months ago I put in a sell order for $18.15 a share, almost immediately.  I had purchased 230 shares at $15.921 each.  A sell order for $18.15 was, shall we say, optimistic.

I can't remember exactly how I arrived at that figure.  CLCT hadn't been above $18 since early 2005.  I had no inkling as to when or if it would go that high again.  I seem to remember picking a number that would be a good sell price PLUS include all the dividends it would pay in either a quarter or two.  If it didn't go above $18.15 then I would make dividend money for a while.  If it did go that high, though, then I would probably be just as happy to sell it as keep it.

Well, I got lucky again.  During the day on Friday CLCT went from $17.96 to $18.75 and then finished the day back down slightly at $17.92 a share.  TD Ameritrade sold it for me at $18.20, actually.  

My profit was nearly 13.75%  after all was said and done, and it was an investment that lasted just under 2 months.  Let me just say:  I feel pretty good about making a profit of nearly 14% in two months.

I thought very seriously about NOT placing that sell order a couple of months ago.  CLCT pays awesome dividends and can actually afford to do so.  If I hadn't placed that sell order then I would surely would have made the same profit, but if I had only profited through dividends then it would have taken 10 times as long.

Anyway, enough gloating.  The point is that for once I actually sold a stock without knowing how I'm going to turn around and invest the money from the sale.  This is unusual.

For now I've placed an order for some shares of Verizon Communications Inc.(NYSE:VZ), but it will only go through if VZ goes below $46.53 a share.  I don't think that's likely to happen, but in case it does, the order is in.  Really I expect that order to sit there, unfulfilled, until another opportunity presents itself to me.

If CLCT goes below $16.25 then I'll probably invest in it again.  I suspect I'll make more money from its price fluctuations, quarter-to quarter, than I would from its dividends.  This is a new strategy for me, and it deserves its own post.  I'll try to find the time to write it up properly.  But not right now.