Hello All,
Ok, so this week I went back to the GLD. I was able to get back into our recent favorite, not having to worry about getting filled like last week. I like the trend we are developing in GLD and I will talk on that later in the analysis part.
Unlike last week where many things were going on, this past week was a lull. No more play practice, no more pi day activities. After about Tuesday I was looking for something to fill the void. Kids had a quiet week as they are starting Spring break at the end of the week.
I will be going to see eldest daughter for the Easter weekend, so next week’s issue will be a little late in getting out as I won’t be getting back home until late Monday. The goal is Tuesday for getting next week’s edition out.
ANALYSIS
Here is the trade done last week:
GLD 153.50 Put $ 0.1400
GLD 152.50 Put $(0.0855) This should have given a $0.0545Gross Credit for a 5.45% ROI
I saw a trade on Tuesday that would have netted 7.5%, but since my rules say put the trade on Wednesday I missed it. I would much rather miss a potential trade then screw up an actual one.
The GLD market was almost static this week, up just slightly = $0.15 for the week. This is the type of market that a condor trade would be good. I missed that opportunity L I wanted this trade bad. I had all the set up work done and it looked great:
1. The Bollinger Band filter was pretty non-committal giving 2 arrows one way and one the other. No real definitive breakout either way. This is a sign of the right time to do a Condor trade, but I missed it.
2. The probability was 91.03%
3. The trend was moving slightly higher for the week
4. IV > HV looked good
5. ROI was a go
PAPER TRADE
No new paper trade this week
Yahoo ongoing trade:
Yahoo Sell July22 Call $ 57 Buy Back $221
Yahoo Buy July20 Call -118 Sell Off $365
Yahoo Sell July17 Put 66 Buy Back $ 15
$ 5 $129
Net Profit = $124
YHOO moved up this week, so our profit moved up. We are getting closer to the target price of $25, and as the price moves up our profit moves up. We are going to start to run into noticeable time decay soon, so the price needs to keep moving toward our target. If I do hit the price target I will get out of this trade and with a profit. The overall bullish bias for this trade is still in place and until that changes I will keep this one on the books.
COVERED CALLS
We still have our covered calls on Vivus and CBI again.
Symbol Company Stock Option Premium Initial Annualized
VVUS Vivus 11.70 Apr13 .29 2,676.00 13.00%
CBI Chicago Bridge 57.40 Apr60 2.30 5,670.00 48.67%
These are the completed covered call trades this year:
Symbol Month Premium Month ROI Ann Month ROI Cum Prem Cum An ROI
VVUS January $32 1.19% 14.35% $32 14.35%
VVUS February $63 2.35% 25.25% $95 21.30%
VVUS March $28 1.05% 12.56% $123 13.79%
CBI January $50 1.12% 13.39%
CBI March $ 125 2.31% 27.73% $175 12.94%
VVUS – This stock is still in the $10-$12 doldrums. It looks like it will be in this range for a while. I decided against selling the VVUS shares for now, basically because I couldn’t find a reliable subustitute on the option premium. If I look at this from a cash flow standpoint I am doing ok, and I might want to hold onto this loss and use it later in the year. If Ican find a reliable substitute then I will probably sell this and book the loss against the gains made this year.
CBI – We are entering this stock again as it has been a great winner for quite some time. We are inching up in cost basis with each trade, but we are consistently making a good profit percentage so I am good with it. Again this month, if we get called away we will make the option premium, AND $330 in gain up to the strike price. That would give a 9.80% total return for the month! If we only get the option premium that still is 4.50% return.
Some people would say that we have had a great year already for the portfolio. True if we go on return based on premium, but if we go with the traditional measure of call premium PLUS liquidation value of underlying stock then we are hurting. But I like to look at cash flow and we are doing well with this. This is the cumulative covered call results for 2013:
Symbol Invested $ Option Prem Call Away Total Return
VVUS $2,676.00 $ 123 $123 4.60%
CBI $4,480.00 $ 50 $320 $370 8.26%
CBI $5,409.00 $125 $ 91 $216 3.88%
Totals $12.925.00 $300 $411 $711 5.50%
DIVIDEND STOCKS
Here are the two portfolios updated.
This portfolio is made up of 100 shares of each stock:
Ticker Name Buy Current Date Div
Price Price Yield
KO Coke 38.17 40.04 08/27/2012 2.71%
AGD Alpine Global Dynamic 5.76 4.76 08/27/2012 6.25%
AOD Alpine Total Dynamic 4.37 4.05 08/27/2012 7.41%
MO Altria 34.26 33.91 08/27/2012 5.17%
INTC Intel 22.87 21.33 10/01/2012 3.94%
HIX Western Asset Hi Inc II 10.53 10.02 10/15/2012 9.44%
MCD McDonald’s 91.74 99.27 10/30/2012 3.55%
MSFT Microsoft 28.55 28.15 10/30/2012 3.12%
JNJ Johnson and Johnson 68.03 79.74 11/23/2012 3.53%
PG Proctor and Gamble 68.72 77.27 12/21/2012 3.27%
Buy Price Portfolio Value = $37,300.00
Current Price Portfolio Value = $39,854.00
Gain/(Loss) So Far = $2,554.00
Portfolio Return = 6.85%
Dividends Received So Far = $537.47
Portfolio Return w/ Dividends = 8.29%
Current Prices as of 03/22/2013 Closing Price
We keep our slow and steady climb with this portfolio. This past week many of the stocks in the portfolio paid the quarterly dividend. Total return is now over 8% with the portfolio portion at almost 7%. This is great! This portfolio is showing my primary philosophy with stocks – buy great companies on sale and then let them ride.
Last week I said I would be taking AGD and AOD out of the portfolio by the end of the month. I think that I have a replacement for one of them while still looking for replacement #2. I will detail the replacements once I have them both picked out.
Both portfolios will carry a 15% stop on them. Portfolio #1 has 100 shares of each stock and will generate $1,198 in dividend revenue assuming no reinvestment. This gives a 4.01% return. Portfolio #2 will have $5,000 invested into each stock and there will be dividend reinvestment. I will carry shares out 3 decimal places. So here is how Portfolio #2 shakes out:
Ticker Name Buy Current Ex-Div.
Price Price Date Shares
KO Coke 36.89 40.04 06/13/2013 135.917
AGD Alpine Global Dynamic 5.76 4.76 04/19/2013 975.576
AOD Alpine Total Dynamic 4.37 4.05 04/19/2013 1,248.370
MO Altria 34.26 33.91 06/22/2013 148.894
INTC Intel 22.87 21.33 05/03/2013 240
HIX Western Asset Hi Inc II 10.53 10.02 04/22/2013 527.137
MCD McDonald’s 91.74 99.27 05/28/2013 55.425
MSFT Microsoft 28.55 28.15 05/19/2013 183.492
JNJ Johnson and Johnson 68.03 79.74 05/25/2013 71.547
PG Proctor and Gamble 68.72 77.27 04/19/2013 72.529
Buy Price Portfolio Value = $51,996.01
Current Price Portfolio Value = $52,750.57
Dividends Received So Far = $460.83
Dividend ROI = 0.89%
Stock Return = 1.11%
Total Return = 1.99%
The difference in the portfolios is the timing in the buying of the securities.
Like above I will be replacing AOD and AGD by the end of the month.
Here is the watch list. Our three keys make getting on the list and then getting into the portfolio rather difficult. Here are the three keys: (1) a moat business model, (2) dividend of at least 3%, (3) solid fundamental analysis numbers.
Ticker Recent Date Div Target
Name Price Yield Price
WFC Wells Fargo 37.20 2.85% 35.00
COP ConocoPhillips 60.91 4.53% 58.00
BAC Bank of America 12.56 0.35% 11.00
BRKB Berkshire Hath B 102.57 No Div Pd 100.00
STI SunTrust Bank 28.23 0.69% 29.00
TCPC TCP Capital 15.75 9.46% 15.60
The first thing that should jump out at you is that these stocks really don’t fit the dividend portfolio model except for COP. These stocks were picked more on the basis of anticipated growth.
Wells Fargo – This stock is starting to reap the benefits of getting itself out of a lot of the mortgage mess it found itself in for the past few years. The dividend is likely to increase as the Feds loosen up on the banks
ConocoPhillips – This stock has great potential as the move significantly higher as the recent earnings was good and it has beat the street consistently.
Bank of America –This stock is keeping up a pattern of growing revenues and earnings after nearly collapsing in the banking crisis. This is a stock that I wish I had gotten into at this time last year at around $4.00
Berkshire Hathaway B Class – This is the way more affordable way to get into Berkshire Hathaway and Warren Buffett than the $150K+ regular Class A shares. Over any period of time 2years or greater an investment in Berkshire has made money. This past year (2012) the S&P beat Berkshire, only the 5th time that has happened in the history of Berkshire – over 40 years. So this is one that is purely price appreciation. DISCLOSURE – I own this in my personal stock portfolio –one of the few stocks I do own.
STI – SunTrust Bank – This is a regional bank that didn’t pass the stress test the first time around but did in the results announced Thursday. Regional banks seem to be where the action will probably be in the financial sector. It has a paltry dividend ROI right now, but now that the stress test is passed the bank will be able to modify this and will probably open up the dividend some more.
TCPC – This is a business called a business development corporation. These types of companies are basically like venture capital groups in that they invest in new businesses, but mostly they invest in the senior debt or hold some type of debt instrument or warrants for stock upon issue instead of investing directly in the companies. TCPC is considered the best of breed in these type of companies and with a 8% yield it is paying a great dividend. Now BDCs (Business Development Companies) must pay out most of their earnings like a REIT, that is why the dividend is so high
QUESTIONS
I am continuing the series of trading rules from Jim Cramer. Here are Rules 6-10 of his 25 trading commandments:
Before you buy any stock, it's important to research all aspects of the company.
Rule 6
Of course, that's a terrible attitude, and, as a parent, I encourage them to study because I want them to do well, and because you never know what they eventually will be interested in.
I think many of you believe that the homework you do on stocks might be just as irrelevant to your own portfolios as schoolwork seems to my kids.
When I tell people that they have to listen to the Starbucks (SBUX - news) conference call or know what the analysts are looking for from Urban Outfitters (URBN - news) if they are going to own those high-multiple stocks, they don't want to hear it. They can't understand what a scold I am.
When I remind people that doing the homework could take as much as an hour per week per position, they look at me as if I am some sort of old-fashioned teacher who is asking for way too much in this busy world in which we live.
That's just plain wrong.
Where does the desire to own stocks with no research into the companies come from? It comes from two different views:
§ If I buy it and hold it long enough, it will come back.
§ I don't have the time — no one has the time — to be that diligent.
The latter point's easy to counter: You don't have the time? Give it to someone else. You don't understand how to read a balance sheet? Give it to someone else. There are lots of good managers out there who will beat you simply because they are at it every day and you can't be.
It's the first concept, though, that I find really needs debunking. Buying and holding became the be-all and end-all for many people in the 1990s. "You know what? I am just going to hold on to that CMGI (CMGI - news) because it has to go back to $100, where I bought it." Or, "Why sell Sun Micro (SUNW - news) now? When it gets back to $70, I am going to sell it because all of the texts say that if you hold things for the long term, everything works out."
Huh? What text says that? I don't know of it. That's just a fictional contortion of what the texts say.
That's why I say: Before you buy any stock — before you purchase Caterpillar (CAT - news), before you buy Lucent (LU - news) — please, please, do your homework.
Listen to the conference calls. Go to the company's Web site. Read the research. Read the news stories. Everything's available on the Web. Everything.
But if you fall back on a buy-and-hold strategy for an EMC (EMC - news) or a Microsoft (MSFT - news), I can assure you that you will be soundly beaten by professional managers with good track records who are actively searching for good stocks all of the time.
Remember:
Buy and homework, not buy and hold.
Buy and homework, not buy and hold.
There will always be a better time to leave the table, so it is best to avoid the fleeing masses.
Rule 7
Panic is the operating instinct in all of these cases. There's something basic and instinctive about panic, about the desire to flee. It might work when it comes to individuals and things that might threaten us physically. But it can't make you a dime. That's why I say:
No one ever made a dime panicking.
There will always be a better time to go, a better time to leave the table than the one brought on by panic.
Let's take a classic panic, a run out of Biogen Idec (BIIB:Nasdaq - commentary) from March 2005. As soon as I saw the panic in that stock, I wanted to run the other direction; I wanted to buy. If you bought the heart of that panic, the $36 price, you could have made a quick 5 points. If you flipped it then, you could have gotten back in and already would have been up a couple for the investible side of the ledger. But by going up again, that stock made a mockery of those who fled.
We get mini-panics all the time in the market. We might have a mini-panic in Starbucks (SBUX:Nasdaq - commentary) off a weak monthly comp number, or in Panera (PNRA:Nasdaq - commentary) and Whole Foods (WFMI:Nasdaq - commentary) off a couple of not-so-great months. Those down-5 and down-10 situations don't need to be chased or participated in. A better time to sell will come.
I want you to do something for me next time there is a panic. I want you to take the opposite side of the trade. When you see one of those high-speed routs of a sector or a stock, buy a little. Get a feel for it. See what I mean. The most rewarding trades you can make are those where the decks have been cleared out by panicky folks using market orders who just don't get that the exit doors aren't as big as they think they are.
Mind you, I am not saying that all merchandise that gets panicked out of is worth buying for the long term. I am saying that it's a rare day when a stock or market that is socked that there won't be some sort of bounce that allows you to get out at a better price than you would have if you just joined the fleeing masses.
Investing in the more expensive stock is invariably worth it because you get piece of mind.
Rule 8
Why don't so many of us feel that way in the stock market? Why are so many drawn to a Safeway (SWY) or a Kroger (KR), inferior supermarket chains, when Whole Foods Market (WFMI) is clearly the best of breed?
Why did so many people lose money in so many different audio component stores, when Best Buy (BBY) is the only company that delivers sustainable profits in that retail sector?
Why would people want to own General Motors (GM) or Ford (F), just because those stocks are down a lot, when they could own best-of-breed Toyota (TM), which is taking share and making big profits? I know they are drawn by the low dollar amount of the American carmakers, but Toyota is the cheapest and the best, a rare find.
The list goes on and on. Way too many of you are unwilling to pay up for best of breed because you think that you are getting short-changed. There are very few bargains out there in the world of secondary and tertiary players. I believe that when it comes to price-to-earnings multiple, investing in the more expensive stock is invariably worth it because you get piece of mind. That's why I say:
Own the best of breed; it's worth it.
Take Walgreen (WAG) and Rite Aid (RAD). Sure, Rite Aid seems perpetually in turnaround mode and you have to love the cheaper stock. Don't you? Not me; I have to tell you that I think Walgreen is the bargain of those two, because I never mind paying a higher price for the better company.
Forget about it. Buy best of breed. Pay up. You almost never will find yourself regretting it.
When trading gets tough, pick your favorite stocks and defend only those.
Rule 9
He who defends everything defends nothing.
When the market's flying and many stocks are in a bullish mode, it really doesn't matter how much you have on, or how many positions you have. The more exposure the better.
But when things get tougher, you have to recognize that many stocks that you bought for better times may not be in good enough shape to rally. You can't own everything you would like to own.
For example, last March you may have been playing the chemical sector with Eastman Chemical (EMN - news), Dow Chemical (DOW - news) and DuPont (DD - news) because you saw the demand from China. But when General Motors (GM - news) suddenly "blew up," you had way too many chemical companies.
I like to say, don't defend them all, just defend some. Pick your favorite and defend that. If you try to defend them all, you simply will run out of capital or go on margin before the bottom. You will lose your reserve and not be ready if the market doesn't turn in your direction.
That's why I rank all my stocks at all times for my Action Alerts PLUS portfolio. I need to know which stocks I will defend when things get tough and which I will cut and use as sources of capital.
It's extremely important, say, if you think that the techs are going to start rallying here, that you don't just keep the whole complex. Pick the best stocks, the ones you know you will want to buy if they go lower and toss out the rest.
Let me give you an example. Say storage stocks seemed to be holding up rather well under tough market conditions and that sector struck me as worth defending. But that might mean I'd toss out a software stock that I was more worried about or eliminate an Internet stock because I couldn't know when it would reverse. I would defend, only, say, QLogic (QLGC - news) or Brocade (BRCD - news), but not both.
If you rank stocks on a scale of one (buy) to four (sell), as I do at the end of every week for Action Alerts PLUS, you know that when you come face-to-face with the enemy — an onslaught of selling — you are ready to buy on the way down the ones you can truly defend — the No. 1 stocks — and you will wait on the twos until they are lower.
The nonessentials — the ones that have no catalysts and that you are using just for exposure because you thought you liked the market — they get the heave-ho immediately.
My wife, the former Trading Goddess, used to call this "circling the wagons" around your best names. The few first times you do it, you will curse yourself because you will be slaughtering stocks you might have had on for some time.
But you must go through this process a multitude of times before you realize how right it is and before it can become second nature.
You will end up with great costs bases on the stocks you really like, and you will have enough capital left to make a difference.
Bad companies never get bids, so it's the good fundamentals you need to focus on.
Rule 10
Funny thing about bad companies: They rarely get bids. In fact, the companies that get bids are great companies with cheap stocks, not crummy companies with expensive stocks. Yet that's what people buy, all the time. Here's my rule:
Never speculate on companies with bad fundamentals.
The odds are that you will end up owning something that could go down much more than you thought, but that has very limited upside. You can make much more money buying a company that is doing well and can still get a bid, than you can buying a company that is doing poorly and is unlikely to get a bid.
Any time I deviate from this rule I get burned, particularly when I approach a stock as a nontakeover story and then the fundamentals go awry and I try to shoehorn it into a takeover story. Take Nortel (NT - news). After the accounting fiasco, I consoled myself that perhaps the company would be acquired because it was so cheap. That proved to be a sucker's game, because the company simply couldn't put out financials. Maybe one day Nortel will get a bid, like Lucent, but I have a feeling that it won't happen soon enough to make up for the time value of money.
Some people have stayed in painful stocks believing that lightning could strike. Meanwhile, if they had moved on, they could have bought high-quality companies that moved up over time and could have done much better.
When you're scouting for companies where the fundamentals are cheap and the takeovers are likely, remember that, unlike companies with bad fundamentals that you speculate on, if these go down you don't need to cut and run. If they don't get a bid, you still can win.
And you need multiple ways to win, at all times.
All charts from freestockcharts.com. This is not a paid endorsement. They are a good free app that only asks for credit on their charts when you use them.
DISCLAIMER: Hashley Capital Management, LLC; as well as I are not giving any trading advice. All data is historical in nature and is intended for use as an educational tool. Trading in stocks and/or options is risky and can result in loss of capital. Stocks and options carry inherent risks and should be well researched before any buy/sell decision is made. There is no attempt to sell any brokerage services or act as a broker or dealer by Hashley Capital Management, LLC. Any forward looking comments on this blog are not attempts to solicit business for Hashley Capital Management, LLC and are the opinion of Hashley Capital Management only. If you choose to follow the same path and invest in the strategies and trades used by Hashley Capital Management, LLC after doing your own due diligence, that is your decision and yours alone.
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TTFN
Ash
