Another Example with Dividends Added, Dominion Resources (D)

In my last couple of posts I covered Apple as a trade subject. While that may smack of what the trading community calls "curve fitting", making the trade work according to the chart, I like to select a plan that would be flexible enough to work over any circumstance and do some quick analysis of the period preceding the trade period to see if my plan would have been executable and supported through the continuance. Basically, determine if the trades would have been taken based on my rules.

The Apple trades were based on the 50SMA crossing over the 200SMA and using that as a guide for the following trend. Not much curve fitting there, just straight trend trading. Recognizing the initial trend early may be key but acting on the information is even more critical as is sticking to the plan.

Here's another example of a very similar setup and follow through. I won't get into various methodologies of the trades but it is pretty obvious that using a similar trade plan as I outlined for AAPL would have worked here. $1,000 incremental buys based on a simple trend following strategy that sets up after the crossover.

Dominion Resources Inc. (D)

The short analysis result:

Adjusted Cost Base (ACB) = $38.86
Total invested  = $7887.90 (203 shares)
Current price = $53.08
Total value = $10,775.24
Capital gains (on paper) = $2,887.34 or 36.6%


While a little more sedate than the Apple run up it is still a pretty good return based solely on capital appreciation.

Then add the dividends and the results get a slight tweak of about 6.5% or $506.

Their next dividend should be $0.4925 and they have a full DRIP which leads me to the real topic of this post.

Assuming that I just send in a regular quarterly cheque for $1,000 and buy the stocks directly shortly before the ex-dividend date (the date that they count the shares as mine for dividend payment for that quarter) and assuming that the dividends are just re-invested.


Adjusted Cost Base (ACB) = $39.38 (slightly higher than the $38.86 above)
Total invested  = $10,000 (269 shares with re-investments, up from the previous  count of 203 shares)
Current price = $53.08
Total value = $14,313 (again, up from $10,775.24)
Total gains (on paper) = $4,313 or 43.1% (compared to $2,887.34 or 36.6%)
Current dividend payout = $121.72

Keep in mind that the current dividend payout that would be re-invested is up to $121.72 per quarter, a far cry from an income level payout but certainly a solid start for a two and a half year investment. I've done some extrapolations based on 30 year investments and smaller contributions with wildly fluctuating prices and the long term numbers, even if the stock tanks, are often very good due to the dividend creating a sort of residual income.

Jeff.

AAPL with an investment twist

In my earlier post regarding Apple, I briefly outlined two simple strategies for trading or investing in the stock. I have traded the options on Apple a few times, profitably, but they are more complicated and not for the faint of heart... at least given the short term trading that I did with them, so I'll skip that particular route.

My current "default" trading is more investment oriented as I am in a few Dividend Re-Investment Plans (DRIPs) so I thought I might spin this a little differently. While there are no dividends with Apple (and I don't blame them as they don't need the dividend spin to push stock any more) the capital appreciation has been substantial on it's own. With dividends the goal is long term dividend growth and re-investment, not so here. With no dividends this means that holding for the long long term may not be the best idea so an exit strategy is necessary. In this case I use a trailing stop order, manually adjusted based on the activity of both the price and  my trading.

Here is the newly annotated chart showing the entry trades with green arrows. Stops are initially set at the short horizontal red lines and moved up as the price moves up and the 200SMA continues trending.

The plan is to scale into the trade in increments. Each time the price nears the 200SMA a new purchase is made. This serves to reduce the risk of getting completely into a trade and having it go South in a hurry. The small entry with a tight stop is built upon gradually. In this case, for use as an example, I figured the valuations based on maximum purchases of $1,000.

Trade entries were made as follows:

8 shares at $120, stop set at $110 (stop loss $80)
5 shares at $200, stop moved to $180 (stop gain $380)
4 shares at $240, stop moved to $220 (stop gain $820)
3 shares at $320, stop moved to $310 (stop gain $2,320)
2 shares at $355, stop moved to $340 (stop gain $2,890)

Note that the stops are only there to catch should the price plummet right after the additional shares were purchased. As soon as the second trade is placed the stop is actually in the money as well, therefore it becomes a profit protection more than a stop loss. 

Adjusted Cost Base (ACB - AKA average price per share) = $208.64
Total invested  = $4,590 (22 shares)
Current price = $402.64
Total value = $8,858.08
Capital gains (on paper) = $4,268.08 or 93%

Here is a two year chart showing the current trend line (green) with the consolidation periods noted with the red lines.

Using the long term trend line as the bottom of each of the triangles, the opportunities for smaller shorter term trades shows up as does the current possible change in trend. Note that the 200SMA has broken the trend line, the consolidation is more pronounced and has it's own lower trend line that coincides with the long term one.In all of the previous trades short selling was not considered as the trend was so obviously up. Now, however, given the change in the pattern I would look at the possibility of short selling as a good short term Counter Trend Position trade assuming that I either sold off the entire long position or had not been trading long term in the first place. You are not allowed to hold long and short trades simultaneously anyway.

Over the next few months I would look for some horizontal price action and perhaps even a shift to a horizontal trading channel to be established. This would have me bring the stop order up to just under the 200SMA or the trend line.

Side note: I toyed with the  idea of "side betting" in just buying a fixed number of additional shares at each purchase point and selling them when the price came within $10 of the upper trend line just to grab a  few extra dollars here and there. Doing this, according to strict rules, produced a little over $600 over the course of the period.

Keeping in mind that this is a small part of any trading plan and not really aimed at producing an income now the overall returns are very good. Of course there could easily be another stock in the portfolio that might not work out so well. Choosing established companies with good records of previous trending can be pretty easy to do. Mix in some dividend producers, short selling and varying the industry mix according to some other interesting plans makes up for the potential for losers.

Jeff.

AAPL, short chart analysis

Talking stocks today.

I received, and completed, a survey from Apple regarding the recent purchase of my iPhone.

Another email contained a stock chart for Google indicating a high price and that "they" have been long GOOG since whenever. I checked "their" stats and they are wrong more often than they are right.

The two emails spurred me to look at the Apple stock chart and see what is up. It's one of those stocks that is followed by, "I wish I had bought when....", but I could have bought and didn't for any number of reasons. The prime one was underestimating the product loyalty of the Apple crowd.

Here is the AAPL chart for the last three years with my notations according to a typical trend trading plan that I have used in the past. Of course this one could be played a few ways and I noted an alternate to the buy and hold plan with the green and red arrows, explanation follows.

At the point where the 50 day Simple Moving Average (SMA) crosses above the 200 day SMA, the stock is trending up and can be bought with a few plans in mind. Obviously buying and just holding would work, but seldom is that known so early on.

The alternate is to buy and set a tightish trailing stop (below the 50SMA), then plot the mean for the trend once it establishes placing the stop below the 200SMA which makes the trade profitable even if it stops out. The upper trend line can be plotted equidistant from the mean on the top side of the price at this point. Effectively, this is a mean reversion channel with a non-standard standard deviation of somewhere greater than 1 and creates a very wide trading channel or a safety stop for buy and hold.

Buy and hold:

Buy at $120 in May, 2009
Value now at over $400 or $280 paper profit, 233% ROI

Trend trading using the channel, ideal trades and only long, no shorting and no buy/sell optimization:

Trade 1 = $120 to $200
Trade 3 = $200 to $270
Trade 4 = $240 to $310
Trade 5 = $320 to $400
Trade 7 = $360 to $420
Realized profit = $360, 300% ROI

Other trades that MAY have been taken (circled in green):

Trade 2 = $190 to $270
Trade 6 = $360 to $410
Realized profit = $150, 125% additional ROI

I'll post a separate entry for an option for those who might like buy and hold with an investment twist.

Jeff.

A Picture a day....

I heard an interview on the radio some time ago with a photographic artist. The topic was her blog that she started with the premise that she take at least one photo per day and post it over the course of one year. I'm not certain if it was an attempt to get past some sort of artistic block or just an experiment for her, I cannot recall now, but I liked the idea and thought that I might emulate it on some level at some time.

I came close on my stock trading blog. I enjoyed creating the posts with the work and effort that it took to produce each so there were days that I might have had multiple posts. How hard could it be to just take a picture a day? Creativity came into the scope as just taking a picture for the sake of the action is typically not enough for those who would actually take on such a project which makes taking one picture a day more than mindless shots of salt shakers and stuff around the house.

There had to be deliberate intention to keep it up.

This ties into a post that I started earlier and haven't finished yet on deliberate living. Intention is not good enough as intentions with no follow through are just more wishful thinking. While wishing is fine it is a dead end without action, preferably some deliberate action.

Oh, back to what I was intending to post when I started this... this morning's late sunrise and this evening's sunset. The first with my iPhone and the second with my digital camera... oh, and the third is just something that I took during the summer that I happened upon while I was uploading these today. By the looks of the resolution it was also on the camera.

I don't think that I will aim to post a picture a day.

Jeff.

Mid-morning winter's day

Sometimes, interesting scenes happen and the moment passes with only a brief mental note and a slight regret that I didn't have a camera handy. With the iPhones at least the capturing of the image is a problem no longer. The remaining two issues then become the scene seen may not appear on the camera as imagined or the mental note is something not easily articulated. The mind is funny in how it sometimes interprets what the eye sees into something different than what may be impressed on the retina. It tends to add or subtract details to match my mind's eye expectations based on what I may be thinking or feeling at the time, more or less the mental note.

Here is a quick shot as I was at the mailbox one day last week.

This is not exactly what I saw, nor can I easily come up with what I was feeling or thinking at the time now. some things are harder to record.

I do recall seeing a bright sunlit morning with the winter's low sun but the camera shows more contrast due to the light compensation that it applied to the image and this causes the blue to be much deeper. This is similar to using a smaller aperture setting or a faster shutter speed on a film camera.

Jeff.

Coldest day of the season yet.

I was planning to join two or three other guys to run in a nearby park shortly after sunrise this morning. Yesterday I backed out, due mainly to the -16C forecast, good thing as the temperature hit -17C. It wasn't so much the temperature as I have not been running for a couple of weeks (minor ankle sprain) and the last time was +10C... no acclimatization here.

I was up and took a few  pictures as the sun crested in the back yard. It certainly doesn't look cold unless you look closely at the second shot, the grass is covered in fairly thick frost.

This third shot was across the water at the boat launch in the park just before sunset. Seeing as it was overcast there was no colourful sky. Even so there is beauty in any view, sometimes it just takes a little time to actually look around, which is why I love running in the forest, every day there is something different if I just take the moment to look at it.

I also tried out a new version of the pedometer Iphone app, but that is another post.

Jeff.

Sun Life follow up and DRIPs

While looking at my last post about the Sun Life trade it occurred to me to look at it as a Dividend Re-Investment Plan (DRIP) opportunity rather than an active trading stock and I came up with three simple variations. Without looking at the actual plan setup, counting any income taxation or counting to the 6th decimal place I ran a quick spreadsheet to give me some idea of possible outcomes should I have started the DRIP in November 2008.

Common items:


I counted the opening price on the day before the ex-dividend date each quarter as the share purchase price. Equal $2,000 purchases and the same price for the reinvested dividends as today, 36 cents per share. There is also a 5% discount on shares purchased with dividends, I did not count that. There are no commissions as a DRIP has none.

While not completely accurate it works to get a feel for the plan without getting overly complicated.


Variation One: The short term investment

There were 13 quarterly payments for a total of $26,000 invested.

The total value of the plan this month would be $22,658 for a paper loss of $3,342 or 12.9%. Far better than the over 30% loss from the advisor's suggestion, but still a loss.

So much for that idea, although other stocks may have faired better under the same timeframe I was not looking for ideal candidates.

Variation Two: The mid term investment, 5 years with stable pricing

I ran the numbers until May 2015 (about 5 years) with the same payments and dividends
The average price over the term was a hair over $24 but varied quarter by quarter
The total value of the plan after five years would be $82,775 for a gain of $28,775 or 53%, 10.6% annualized

Not bad for a "retirement plan".

The return is not the goal here though, dividend growth is. At the end of the five years the quarterly dividend payment would be about $1,050.

Variation Three: The mid term investment, 5 years with dropping pricing


The average price over the term was a hair under $20 also varied quarter by quarter
The total value of the plan after five years would be $57,840 for a gain of $3,840 or 7.1%, 1.42% annualized

Not great for any plan but better than a lot over the last number of years.

Again, the return is not the goal. At the end of the five years the quarterly dividend payment would be about $1,388. Due to lower pricing there are more shares purchased by the end of the period which bumps the total dividend payment. Ideally the goal is to be able to buy the shares cheap and have them increase in value after the majority of the purchasing is completed making the plan value increase while the dividends are being drawn off for income.

One other thing to note is that typically a good dividend creating stock will increase their dividend which will also boost later income. Of all of the trading that I did over the last few years the DRIPs that I started out with are all that I actively hold right now.

This is in no way a comprehensive post about DRIPs but if anyone wants more info I can post more and supply some interesting links for forums or dividend listings.

Jeff.

Stock Trading, stirring the dregs with Sun Life

My most prolific blog followed my trials and tribulations in stock trading (options and futures slipped in there as well) but I have all but shut that side of my activities over the last year and change. Even so, I still like to check in on a few things now and then.

About a year ago, shortly after my decision to close up shop, I had a financial adviser hitting me up to become a client. He dropped a few "hot" suggestions that were to serve as teasers to get me interested in using him. Commissions were huge as a $30,000 "investment" would cost just north of $1,700 to transact compared to my broker commission fee of $10. I just couldn't justify the idea let alone actually use the service. It's not like he was giving me any guarantee.

The "hot stock tip" was Sun Life Financial (SLF), here is the three year chart with a couple of notations.

The suggestion was a buy and hold trade around this time last year denoted by the red vertical line. The stock was in the $27 range at the time. The first problem here is the total cost of the suggested trade. Say 1,000 shares is a $27,000 investment plus the $1,700 commission for a $28,700 total cost. Today this stock is worth $18.50 for an $8.50 loss. Total position now is worth $18,500 and I would be in the hole $10,200, a 35.5% paper loss.

I honestly don't know where the stop would have been as, like I said, this was to be a buy and hold.

Here would be one way of analyzing the stock for a technical trade given the same entry time, if I HAD to enter at that time, but I never HAVE to enter any trade until it's ripe and this was certainly not ripe..

The orange bands represent a one year linear regression with the center line being the median. Seeing as the regression is indicating a downtrend and the price is not far off of the median there is no trade. The top of the wedge (blue lines) might indicate a good place for a short but when it isn't in alignment with the top of the regression channel it is not and ideal trade.

Here is the chart as I follow the regression along and tie the top wedge line to the "current" end.

The price has hit the point where the top regression line and top wedge line meet. In fact the two lines are very close to being the same. Ideal trade setup for a short trade particularly as the wedge is still rather large. It gets tricky as the wedge tightens down just before it breaks out... which is where CTP shines.

The next chart shows the wedge and lower regression line coinciding closely which could be an indication for a long trade but, considering that I am in a short CTP trade and the wedge is getting very narrow I would just exit half and hold half for a possible move lower. The thing about the CTP strategy is to be in play as soon as the wedge first develops in order to not get caught on the wrong side which is very easy to do this late in a formation.

There are other considerations here that would make me consider holding the short rather than switching to a long trade but just going by the chart technical setup is enough.

The current shape of things:

That's why holding a half a trade is a good plan.

Taking my "possible" trades as outlined above and putting the numbers to them yields the following.

Short at $33.
Exit half at $28
Hold until today at $18.50... seeing as the regression and price are together I might go ahead and exit this trade altogether or just keep moving a trailing stop order (maybe even a VTSO)
Realized profit = $5 per share
Paper profit = $15.50

That 1,000 share trade would show a $2,500 realized profit and be sitting on another $7,750. Based on a $33,000 initial outlay (shorts are different but the money is still tied up) that is a 31% ROI in less than one year on one trade.

No, certainly not all trades go this cleanly and not all trades are of this size, it was more for a comparison as if I had to make a trading decision based on this particular stock. Based on this style of analysis I would not consider trading this one anyway. There are other methods that would suit this one better.

I also must take care in shorting as I think there is a dividend involved here so I would end up paying that out of my pocket if I held the short through distribution time. Still a nice trade even with the dividends counted out.

Jeff.