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Archive for October, 2012

Posted by Martin October 29, 2012

How to avoid tax problems

Many investors deal with taxes when selling stocks or cashing their dividends. Taxation is always a problem which is in many cases overlooked and badly planned. I must admit I need help myself and always look for professionals who can provide me with planning with personal taxes (since I am a private investor).

Many times I have to deal with calculating stock price basis when selling them. A broadly overlooked part on my side was that when computing my basis in stock sold in one particular year, I didn’t include any dividends that were automatically reinvested into shares since the time of purchase. This and any fees involved with the purchase of shares are considered cost basis and will reduce your capital gains.

One way how to avoid tax problems and confusions would be to hire a tax professional who can provide you with help and planning. If you are not sure, and need IRS tax relief, go and hire a professional to help you with the job to avoid paying unnecessary taxes.

Happy Trading!

Posted by Martin October 28, 2012

Sell the rip, buy the dip – gold ETF (GLD)

In my portfolio I wish to have some exposure to gold (GLD). I read several articles in the past about buying gold and reasons behind it and when you are watching what the US government is doing to our currency, you definitely get an itching for gold. Bernanke’s moves and the entire FED devastating policy of devaluing dollar’s value are catastrophic in the future for common people. There are a few ways how you can protect yourself against it and gold is one of the ways.

Just a few years ago, gold was selling at 400 per oz and last year it was at 1900 oz. With the inflation, Bernanke is “preparing” for all of us, gold will skyrocket in the future. It will have its peaks and valleys in price during its journey up, but generally it will be going up.

And it is those valleys I would like to pick up. As the saying goes, buy the dips, sell the rips I am going to buy more shares of gold via GLD ETF.

The recent rally in GLD was impressive and GLD is now correcting that rally. I am expecting GLD going lower in price. The reason for it is that the market (SPY) will most likely show a short term rally on its way down which would push GLD lower. As the market turns back down and continue going down, gold will most likely go up.

For that I will start buying GLD shares if and when the GLD drops below $163 per share.

Happy Trading

Posted by Martin October 26, 2012

Realty Income broke below 200 MA

Realty Income broke below 200 MA

Realty Income broke 200 MA support in today’s session and many investors panicked asking why did it happen? However, as you can see on the chart below, buyers stepped in and pushed the stock above 200 day MA, but for a moment only. It closed below on a low volume.

Should you be worried about this price action? As a long term investor this is definitely a great opportunity to buy more shares. Is it time to rush in right now? Probably not. We still may see more pressure down in this stock, but I am definitely getting ready to buy more shares of this stock.

Look at today’s price action:

Realty Income

The price dropped below 200 day MA but buyers pushed it back above it. The candle has a long shadow and it may indicate an exhaustion, however, volume was below average. From the long term perspective we still may have a quite long way down to go:

Realty Income

The stock may go all the way down to $38 per share, which would be an excellent buy point. Should investors be scared? I do not think so. Realty Income proved itself over time that it is a well managed company and historically it survived all catastrophes, downtrends and sell-offs.

Realty Income

The red line on the chart above indicates a price action of the stock, the blue line indicates the dividend. Except one moment in 2005 the stock was consistently raising the dividends even though the price action was negative and the stock was losing.

For Monday I am planning on opening a trade order to buy more shares of this stock.

Posted by Martin October 25, 2012

Lending Club Holdings page

I really enjoy investing with Lending Club. I’ve been investing with Lending Club for almost 3 years and over that time I have developed a method of selecting, evaluating and watching new notes in which I want to invest and those I am already invested in. The method of watching the notes I already own helped me to avoid late or defaulting notes. And by that I mean absolutely no troubled note at all. By watching carefully my notes I was able to sell any note before it turned bad. This process helped me to have only current notes and increasing my return.

The following charts are showing my current record and I added a new page named Lending Club Holdings for quick review of my account progress.

For the upcoming period (not necessarily next year) I have a plan to save $10,000 in Lending Club and then I will continue reinvesting all proceeds only. After I reach this goal, I will focus on my TD Ameritrade trading account and save/invest $10,000 in TD account.

Interest rate over time:

Current account value:

Monthly payments (interest & principal):

Annual interest income:

Are you considering investing with Lending Club? Do you need help? Contact me for information or help.

Happy trading!

Posted by Martin October 25, 2012

Another candidate for accumulation – RealtyIncome (O)

Another candidate for accumulation - RealtyIncome (O)

Another stock (O) is being pushed down by temporary sell off. I believe it is a temporary sell off and here are my reasons for it. The company released its 3rd quarter results from which the revenue dropped from $34.7 million in previous quarter in 2011 to $27.0 million. All other metrics seems to me staying at the same level or increasing. The dividends also increased in the previous period. So what caused the drop? The company states that it was the one-time payments to preferred stock redemption and merger related costs.

And here it comes. The company is going to acquire all outstanding stocks of American Realty Capital Trust (ARCT). Isn’t acquisition considered as a good sign in the investing world? Will that make Realty Income stronger? Mainly when considered the mission of this company which has been increasing dividends for 14 consecutive years? This acquisition will bring a portfolio of investment-grade tenants (such as manufacturing, other industrial and office properties) and Realty Income overall portfolio on retail tenants would increase from 19% to 34% and their non-retail portfolio from 14% to 19%. You can read more about this acquisition here. Overall, I look at this event positively.

The company purchased 87 new properties last quarter and revenue from the existing properties increased last quarter. The Company estimates that 2013 FFO (funds from operations) per share should range from $2.30 to $2.36 per share, an increase of 12.7% to 18.0% over the 2012 estimated FFO per share of $2.00 to $2.04. FFO per share for 2013 is based on an estimated net income per share range of $0.93 to $0.99, plus estimated real estate depreciation of $1.44 and reduced by potential gains on sales of investment properties of $0.07 per share. It is planning on increasing the dividend in 2013 by 37c to $1.947 per share (an increase by circa 6%).

Looking at the mission of the company, its management and workers in the company who proved over time their diligent strive to create a company on which people who are looking at steady income (such as retirees) can relay on, I believe today’s price action creates another opportunity to accumulate.

Let’s take a look at the stock from the technical perspective.

The stock is attacking its major support, which I believe is at $40.30. We touched this support a few times in the past in August and in September. Currently it looks like the stock is forming a head and shoulder pattern and it is now breaking thru the support at $40.30 level. Will this level hold?

It may or it may not. If this level won’t hold we may go as low as to $38 level, where I think is the next support, see the chart above showing 5 year chart. For almost whole last year the stock was drifting downwards and finally picked up in October 2011 and since then it was a rising stock. Are we going to repeat the same trend? On the 5 year chart see the red short downward line. This line is an exact copy of the same line in the middle of the chart indicating the period of slow downward move last year. Thus the red line may be a projection of what may happen again. If that happens, considering the outlook of the company and considering that the economy may finally pick up and grow next year, this consolidation may be a great opportunity to buy more shares of this company.

What will be my approach then? I will continue watching this stock carefully at this time and moving more cash to my account. As soon as I can see reversal in the stock I will use the same buying strategy as I used in Abbott (ABT) to buy more shares.

Happy Trading

Posted by Martin October 25, 2012

New trade – Abbott (ABT)

New trade - Abbott (ABT)

(TD Account)

I bought ABT as part of the accumulation phase. The goal is to continue saving in Lending Club as long as the account reaches 10,000 dollars. Then I will start focusing more on TD account and accumulating 10,000 dollars in TD account. Then I will switch to ROTH and accumulate 5,000 dollars in the Roth account.

This stock dropped significantly in price, partially due to slower revenue and partially due to market correction. This company is a dividend achiever, continuously raising its dividends. During this drop the company didn’t decrease dividends so for me it is an accumulation signal. Since I have little cash in this account I could trade only 13 shares. I will be saving more to add more shares later as long as I reach 100 shares, which enables me to use covered calls strategy as well.

I used a buying strategy based on the following formula:

subtract day low from day high. Divide the result by 2 and add it to close. I was lowering the buy price per this calculation since Friday 19th, 2012 and this strategy helped me to avoid buying into falling stock, but only a stock which is reversing in price. The stock recently reached its support at $65. It may be now bouncing, but it should be now growing up. Time will show. If the stock stays at the recent lows I will continue accumulating.

I entered at 65.96 per share today:

10/24/2012 09:58:28 Bought 13 ABT @ 65.9599

Estimated annual dividend: $26.52
Consecutive Dividend Increase: 39 years
Dividend yield today: 3.10%
Dividend 5yr Growth: 9.63%
Dividend paid since: 1926

Posted by Martin October 23, 2012

Market shake out or in trouble?

Market shake out or in trouble?

Today the market got beaten down by worse than expected earnings reports. This can be a temporary over reaction as we experienced many times during previous seasons or it can be a significant game changer turning the markets back to south. Which way the markets will go? It depends on many factors. Let’s take a look at it from the technical analysis perspective and let’s keep it simple.

SPY

From the chart above we can see the market SPY being in a formation known as a flag. Typically it is a consolidation pattern and it is considered that if you enter into this pattern from bullish perspective, we will most likely resume the trend from which we entered.

However, today we broke down from this pattern. That can signal two things to me. We are either experiencing a shake-out when weak hands will be gotten rid of their positions in panic selling and the market resumes, returns into the pattern and continue running up. All the weak hands will be rushing back in moving the market up.

Or we are at the beginning of deeper trouble, the consolidation pattern fails and we will see further downtrend. How deep can we go in such case? Currently we are at the 1.st support level, if we break it, we can go as deep as $138 mark. Time will show.

For me this is a great opportunity buying more shares of my holdings such as Abbott. I moved my buy point lower yesterday and since today the price dropped even lower, after today’s closing I will be moving the buy price even lower (buying cheaper). My new buy point for tomorrow will be at $65.93 per share.

Now let’s wait for the next move.

Happy trading

Posted by Martin October 20, 2012

Abbott (ABT) is a buy at recent price

Many investors are wondering what’s going on with ABT and why it dropped some much in price recently. Some wondered whether the failed kidney drug test was the reason, or was it sales and earnings although it met expectations, or decreased revenue? I do not know, but honestly, I do not care that much.

What I care however is this. The company is a dividend payer. How the current situation affects the dividends?

If you take a look at JNJ which undergone serious issues last year with recalls, the company was able to sustain it, it didn’t decrease the dividend and it survived because of the strength of the company, its size and a whole range of products it manufactures.

Thus I believe Abbott is in the same range of companies. It’s been raising dividends for consecutive 39 years, the dividend growth is 9.63% annually and dividend yield is now 3%. It’s PEG ratio 1.89 is in line with industry median of 1.69, P/E of 16.203 is in line with industry median of 18.71 and thus the company is fairly valued. As a dividend achiever, to me, this stock is a buy.

Last Friday I used scaling in tactics to buy more shares of ABT. My buy price for Monday would be only if it reaches $66.9 with stop limit at $67.8.

Posted by Martin October 15, 2012

Impact Of QE3 On Agency Mortgage REITs?

In this article, I look into how QE3, more particularly the Fed’s MBS purchase program, affects agency mortgage REITs. I discussed my approach for agency mortgage REIT analysis in this prior article.

A few days ago, the Fed laid out its plan to buy about $40bb of agency MBS per month over the next several months. The price of mortgage-backed securities has since gone up, and their yields have come down significantly. As a consequence, many fear that REITs investing in these bonds would see their income drop, which would imply lower dividends in the future.

However, I think that in fact QE3 will not have a negative effect for two main reasons:

  • The spread between primary and secondary mortgage rates will widen as the Fed pushes MBS yields tighter.
  • The increase in book value of REIT MBS positions will largely compensate for the loss in interest.

I illustrate my logic with Armour Residential (ARR). I like it as an example because I own it.

Continue reading…

Posted by Martin October 14, 2012

Armour Residential ARR is it a buy?

In my opinion and view Armour Residential (ARR) is a buy. I am not searching for the reason for the recent drop in price. Since I am building my portfolio by buying more and more shares and reinvesting dividends, I am also looking at the point when is the best time to add to a position. ARR recently dropped down and the question goes whether it is a buy now or the stock is experiencing troubles so you should stay away from it.

My view is that this stock is a buy. Why? The first reason for adding more shares to my existing position is that insiders are buying. In last 12 months there were 20 trades by insiders; 18 were buys and only two were sells. The most recent buys happened just recently in September 2012.

The next reason is that ARR is currently trading at book value. For dividend investing it is a great sign. The dividend rate is now 15% so by buying now your dividend yield to cost will be great.

This stock is not the true dividend achiever to me, it has poor record on rising dividends and it recently lowered the dividend rate, but as a high yield payer and REIT (which in my opinion will grow as the retail market gets alive again) this stock is a great addition to my portfolio which can pay nice dividends to be reinvested.

Thus I am buying more shares of this stock.