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Posted by Martin May 29, 2013
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Mr. Market’s bad mood seisure


Mr. Market

The stock market is in a selling mood. But the selling isn’t that bad yet. It can get worse, although today the DOW was losing a triple digit loss.

When I woke up this morning – and I heck didn’t want to – I saw my account completely in red. The biggest losers were REITs and since my account is quite exposed to REITs I was losing a lot.

One idea struck me when looking at my account

I saw Realty Income losing a lot this morning… Well, still not that bad as AGNC or ARR or other REITs. And I was thinking why investors would be dumping Realty Income along with AGNC, AVB, EQR, ARR, and others.

Realty Income is a totally different business compared to AGNC, for example. I even cannot grasp why people are afraid of stocks like AGNC or ARR if the FED stops the stimulus. And I would appreciate my readers if you can educate me a bit thru the comments.

But here is how I see it

Many times I read and heard that FED stimulus caused REITs to shrink their margins and thus their ability to make money due to very low interest environment. I heard that their space for profit was very narrow. So my understanding was, that it would be better if the spread between interest rates on mortgages increases. So I felt FED actions to be bad for REITs.

And yet REITs ran up like a crazy horse

But that is (or should be) true when talking about REITs investing into MBS (mortgage-backed securities) such as AGNC, ARR and others named above.

But why the heck people would be dumping Realty Income, which owns properties and make money on renting it. This company has nothing to do with mortgages and any sort of MBS trading. Their risk is in a totally different zone. Their problem could be in tenants not paying on time or at all, inability to rent and have their properties vacant, etc.

The market was overbought and Realty Income was overbought as well, you can clearly see in any long term chart. But this sell off based on FED tapering the stimulus is just a pure excuse to profit taking and some short selling.

The only thing which makes me mad is that I bought too early yesterday. But sometimes that happens in the markets.




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Posted by Martin May 28, 2013
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Trade Adjustment – adding Realty Income (O)

Trade Adjustment - adding Realty Income (O)

Today, Realty Income ran up in the morning and my conditional order triggered my limit order. The limit order was filled and I bought 19 more shares of this monthly dividend payer.

However, later in the trading session, the stock reversed and continued down. The loss today was -1.77%. This purchase is now losing me some money. It is not anything dramatic, since I am still 13.13% profitable (capital appreciation only).

If I add dividends to my calculations, I am 15.19% profitable with this stock.

And my average yield on cost with this stock is currently 5.09%. It is not bad at all!

However, today’s trade execution made me think about adjusting my conditional order system. I was thinking to provide more room for the stock to move during the day without being executed too early.

How To Buy Stocks To Increase Profit Potential

If you remember my post about entering into a stock position I calculate the stock entry price the following way:

(0.5 (Day High price – Day Low Price)) + Last Price = New Entry Price

I think, this equation doesn’t provide enough “wiggling” room for the stock to trade higher or lower during the day without being executed prematurely.

I decided to increase the result by 1%:

((0.5 (Day High price – Day Low Price)) + Last Price) * 1.01 = New Entry Price

Maybe you are asking, why I am calculating the entry price this way instead of waiting for the stock or using charts (technical analysis), etc.

The reason for this is that I (must admit) am not good at timing the stock market. I always get trapped into a circle of questions such as “Is this the low? Will it go lower? Is it turning around already?” etc.

The equation above helps me eliminate such questions and sort of automate my trading. It eliminates my emotions. All I have to do is watch the stock and as it starts going lower (but it must be based on panic or predictions of talking heads who start predicting gloomy future for the stock based on their thinking and crystal ball reading, and not based on dividend jeopardy) then I put the equation into play and let it go.

Buying A Monthly Dividend Paying Stock

Today I bought my 19 additional shares of Realty Income. Although the stock may go even lower than my today’s purchase price, I am happy with this addition.

Total shares held as of today: 117
Estimated annual dividend: $253.89
Consecutive Dividend Increase: 15 years
Dividend yield today: 4.40%
Dividend 5yr Growth: 3.62%
Dividend paid since: 1994

The stock may continue falling lower. Although today we touched its 50 day MA, so I am not expecting (from technical analysis perspective) the stock really going lower. We should bounce from here and move upwards. Such bounce may only be a temporary rally and the stock may turn back down. Or the bounce may be the end of this correction (which would indicate a very healthy price action) and we will continue to new highs.

If the stock goes lower I may be considering adding more shares of this monthly dividend paying stock.




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Posted by Martin May 26, 2013
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My inspiration in the last week #23

My inspiration in the last week #23

This week I would like to present the following interesting web sites and links.

I often browse the internet to find ideas about investing, trading stocks, options, investing opportunities and strategies. I like to read about investors and what their investing/trading approach to create income you can live on is.

 

 
 




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Posted by Martin May 23, 2013
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An ultimate dividend payer


Realty IncomeAlthough you won’t find a perfect stock across the market floor, there is one which earned attention of millions of income seeking investors. You won’t find too many companies out there which mission is to provide income. I am talking about a California-based real estate investment trust – Realty Income (O).

It may not be a perfect stock, but it is getting closer to that definition.

This monthly dividend paying stock was beaten severely down by Mr. Market these last two days. To me the drop provided enough correction to consider adding shares to my holdings.

If you want to find why the stock fell, you probably won’t find a meaningful reason. Most of the blatant explanations out there would be circling around Big Ben’s proclamations, visions, speeches or who knows what and insane investors out there guessing what impact that may have to the nearest market’s future.

Who cares? All I care about is whether this stock will be able to continue paying the promised dividend or not.

The company has been paying dividends for consecutive 19 years and it has been raising it for consecutive 15 years. It paid dividends and raised it during 1998 – 2000 severe drop (the stock lost 30%) but the dividend never dropped, was never cut or suspended.

There are other great companies I was looking at possibly buying, such as AGNC, PPL, AT&T (T), WMT, and many others which were beaten down by market participants’ irrationality, but I decided to accumulate Realty Income stock and add more shares.

I am not buying out right, but again I will use a contingency order to buy only if the stock reverses. I entered the following order:

If the last of O is greater or equal to 51.7
Buy 19 O at limit $51.7

 

If the stock continues falling, the order will not execute and I will be lowering the buy price along with the new lower stock price. If the stock reverses and continue moving up, the order activates the limit order and I will buy 19 more shares.

I have two reasons for adding this stock. One reason is that this is a good, stable, and reliable dividend payer, the second reason is that with this purchase I will exceed 100 shares and I am planning on applying covered call strategy (although I will be very careful with this strategy, because Realty Income is not a stock I want to have called away).

What do you think? DId Realty Income dropped low enough to buy or would you wait more?

 




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Posted by Martin May 23, 2013
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I miss my spam!

I miss my spam!

This post will be a bit off topic. But it will demonstrate how crazy and retarded I became about blogging and checking comments.

I used to receive 90 – 100 spammy comments every day. All of them were captured by Akismet. But time to time a legit comment was detained and I didn’t want to miss those comments, so every day I browsed thru the spam to see if there are some legit posts.

Recently, I installed another feature eliminating spam and I now have ZERO spam! Opening my admin dashboard on my blog is now so boring! I miss my spam! Can you believe how crazy I am!?




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Posted by Martin May 20, 2013
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Commission free wealth building new trade RWX

Commission free wealth building new trade RWX

Another recent flow of trades I realized last week on Friday was a purchase of a commission free ETF SPDR Dow Jones International Real Estate ETF (RWX).

This trade is a part of my small money investing experiment. Thus on Friday I invested $91.18 to buy 2 shares of this dividend paying REIT. This ETF pays 5.83% annual dividend and 5.79% distribution yield. I bought this ETF into my ROTH IRA account and I will continue investing all small money (received dividends and contributions) into this commission free ETF as long as I save enough money to buy a lot of a stock of my interest.

To do that if I save let’s say $1100 in this ETF, I will sell $1000 worth of the holdings and buy a stock, while continue saving small contributions and dividends into this ETF to raise the holdings back up to $1100.

Then rinse and repeat…

Here is the trade from last Friday:

5/17/2013 14:58:28 Bought 2 RWX @ 45.589

Happy commissions free wealth building!




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Posted by Martin May 20, 2013
3 Comments



 




My inspiration in the last week #22

My inspiration in the last week #22

This week I would like to present the following interesting web sites and links.

I often browse the internet to find ideas about investing, trading stocks, options, investing opportunities and strategies. I like to read about investors and what their investing/trading approach to create income you can live on is.

 

 
 




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Posted by Martin May 20, 2013
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Trade adjustment – Demand Media (DMD) – new covered call (11.24% gain)

Trade adjustment - Demand Media (DMD) - new covered call (11.24% gain)

Another stock I used for covered call writing in my portfolio was Demand Media (DMD). You can see the previous trades here.

As you can see I opened the first covered call in December last year. The trade didn’t go as well as I would expect (the stock wasn’t called away), so I bought back almost worthless covered call and sold a new one. Since then the trade progressed in my favor and brought 11.24% gain as of the last Friday (31.60% annualized return).

Since the last covered call expired worthless this morning I could sell another covered call against this stock, generate more income, and improve overall trade.

Trade Detail

This morning I sold another covered call:

05/20/2013 09:30:02 Sold 1 DMD Nov 16 2013 10.0 Call @ 1.2

 

Own 100 shares DMD: $9.50
Strike: $10.00
Sold 1 Covered Call: $1.20
Total Purchase: $120.00
Commissions: $8.78
Total purchase: $751.31
Expected Option Assignment: $1000.00
Option Assignment Fee: $19.00
Expected Proceeds: $981.00
Expected Net Gain: $229.69
Expected ROI: 30.57%

This trade added to my overall income generated in May 2013 to be $220 so far. This helped me to meet and maintain my goal to generate monthly at least $100 thru options trading. If this trend continues I should be able to exceed my goal.

How are you generating income from your investments?




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Posted by Martin May 20, 2013
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Trade Adjustment – 8×8 Inc. (EGHT) new covered call

Trade Adjustment - 8x8 Inc. (EGHT) new covered call

Last Friday (05/17/2013) was the last trading day before options expiration day. I had two options in play for this month. one of them was a covered call for EGHT. This stock broke above the strike price for several times before expiration, but at the end ended below it, so my covered call expired worthless.

Originally I wanted the call being assigned and have the stock called away to free cash I have in this stock, but I am OK with this outcome as well. Not only I have realised 100% profit on my original trade, but today morning I could sell another covered call improving the profit of the entire trade.

By expiring this call I could keep $45 premium (6.3% gain, 29.5% annualized return).

You can review my original trade in the “New Trade – 8×8 Inc. (EGHT) covered call” post.

As you may see in my original post, if the stock got called away, this trade would ended up with 13.72% gain.

It didn’t happen and I could sell another covered call today.

Trade Detail

The trade got executed this morning at opening and I collected $100 premium for this stock improving my trade:

05/20/2013 09:30:00 Sold 1 EGHT Nov 16 2013 7.5 Call @ 1

 

Own 100 shares EGHT: $6.79
Strike: $7.50
Sold 1 Covered Call: $1.00
Total Purchase: $100.00
Commissions: $8.78
Total purchase: $551.56
Expected Option Assignment: $750.00
Option Assignment Fee: $19.00
Expected Proceeds: $731.00
Expected Net Gain: $179.44
Expected ROI: 32.53%

I am excited how this trade perform so far. Let’s see where we get this trade in Novemeber.




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Posted by Martin May 16, 2013
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Commission free wealth building – this time with REIT ETF

Commission free wealth building - this time with REIT ETF

If you ever wondered how to avoid fees on your retirement account or even taxable account or you only can afford invest small money, the commission free ETFs may be your solution as I wrote in my previous posts “How to invest with small money“, and “New Trade – SPDR EURO STOXX 50 (FEZ) in ROTH IRA – Commission free wealth building”.

Fees, taxes and benefit of commission free ETFs

ID-100144085If you wish to use this strategy in your taxable account you can improve its performance by a large margin. Imagine, that in taxable account you pay taxes on every dividend you receive and on every capital appreciation you materialize (sell the stock). On top of all this you pay commissions! What a great improvement you can get when you can avoid commissions! And another benefit would be if you avoid (or minimize) selling your stocks at all. That is one of the reasons why I invest into dividend paying stocks, because unless the company cuts the dividend, you do not have to sell and you can hold forever.

With that you avoid taxes on capital gains and commissions. All what is left is commissions on dividends.

Why do you need taxable account as part of your retirement portfolio

You may ask a question why having a taxable account a part of the retirement portfolio of accounts? Well, the philosophy of having a taxable account as part of your retirement strategy is having such an account working for you as a bridge.

Department of Labor estimates that reducing annual fees and expenses to 0.5% from 1.5%, a 30-year old with $25,000 in assets could expect an extra $64,000 at retirement.

If you have 401k, ROTH IRA or traditional IRA, you are typically required to begin your retirement withdrawals when you turn 59-1/2. But what if you save enough money so you will be able to retire early? Let’s say you max your 401k and ROTH every year and your combined portfolios will be big enough to start retirement when you turn 40.

At that point you will not be eligible for Social security, 401k or ROTH IRA benefits. How will you go over the almost 20 year long period and where do you plan to get the money?

This is where the taxable account comes in the game.

And since it is a taxable account, you get no tax benefits and you get hit by fees. Let’s minimize these loses by avoiding fees.

Which ETF to select?

dividendThis depends on your selected strategy which ETF you want to go. I am a dividend investor so my preference is to select ETFs which pay dividends and distributions. Last time I selected SPDR EURO STOXX 50 (FEZ) which is exposing my portfolio to international stocks. This time I am going for ETF which is investing into REIT sector. My screener listed SPDR Dow Jones International Real Estate ETF (RWX) as my candidate. REIT stocks were recently beaten down by 1Q bad results, which in my opinion is a seasonal hiccup and overall management should be able to overcome this in the long term. RWX is also an index ETF, so I am not exposed to only one company but to the whole REIT industry.

RWX pays nice annual dividend of $2.66 (3.59% yield) and distribution at 5.79%. It is a commission free ETF, so I will only pay taxes on dividends and distributions if I purchase in my taxable account. I am however going to buy this ETF in my ROTH IRA and it will cost me $0 in fees and taxes.

To buy into this ETF I will use my “contingency order strategy”.




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