Investing into Stocks - Hello Suckers!

Posted by Martin December 18, 2012
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gold (GLD)

New trade – adding Gold ETF (GLD)

Gold retreated to its 200 day MA today and I decided to add a few shares to my holding, since I consider this attractive price. I see some similarities and pattern in GLD corrections, (see the chart below) and thus I believe we are in similar pattern as in 2008.

GLD

Also I want to be buying Gold as some protection against FED and its money printing. I believe, there is more devaluation of dollar coming so as a long term investment, GLD is a good choice. Today I added a few shares (as far as my available cash allowed) and if the stock continues falling, I will be adding more shares.

12/18/2012 13:40:36 Bought 5 GLD @ 160.99

Total shares held as of today: 12

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Posted by Martin December 18, 2012
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goals progress dividend investing Strategy

My Goals 2013

We are heading towards the end of 2012 year and it is time to review the progress of the goals we made last year and set a new set of goals for the upcoming year.

I hope you all had a great year and that the next one will be even better.

In past years I barely set my goals publicly so this upcoming year will be my first approach to do so. In the following lines I will try to describe my goals and set the way for monitoring the progress.

My investing achievements in 2012

Those of you who read my blog may know that I have several investing accounts with different investing purposes or strategies. I would like to review them and describe my achievements and changes I want to implement in the following year.

Lending Club

Investing with Lending Club was one of my greatest achievements and a great success. I was able to develop a strategy which protected me 100% from defaulting or late notes and helped me to achieve a great rate of return of 13.39%.

My 2012 goal with Lending Club:

My goal was to reach 10,000 dollars of account value and I met this goal.

My 2013 goal with Lending Club:

During 2012 I focused my savings and learning to Lending Club. In 2013 I want to focus on my TD account instead. In Lending Club account I will contribute only $220 monthly and reinvest all proceedings. I want to reach min. 14% annual rate of return. You can continue watching my progress on this page which is updated online, (well anytime I download data from my Lending Club account).

I MET THIS GOAL ON MARCH 10, 2013
ANNUAL RATE OF RETURN 14.00%

ROTH IRA

Currently I am not planning on focusing on this account. I will continue on doing what I am doing right now and basically mirroring a strategy being used in TD account. I didn’t have any specific plan in 2012 for this account either.

401k account

I will continue contributing 3% to my 401k (which is equal to my employer’s match), monitor my holdings, and rebalance every 6 months. That is basically all I can do anyway.

TD account

This account will be my main account I will be focused on during 2013. It is a taxable account, but I still want to pay more attention to this account over my ROTH IRA. You may ask why I am preferring a taxable account over a deferred account. There are the following reasons:

I can contribute as much money as I want, while ROTH has a limit, which is what I want to do this year.
I can use leverage which is prohibited in IRA accounts.
I can apply strategies which are not allowed in IRA accounts such as shorting stocks.
I can withdraw any cash in any amount I want, whenever I want, and use it any way I want.

That doesn’t mean I want to neglect my ROTH, not at all. I just want to focus on ROTH next time as soon as I reach my goal in TD account.

What was my achievement in 2012?

I learned a lot about trading options. I made good money, but I also lost them. I got caught in a trap every beginning investor and trader gets caught. I thought I was the king of option trading and slowly gave up all my gains.

You can see this process on the following chart. See the spike at the beginning? I started trading options with $2500 in my account and I reached almost $8000 (the very beginning isn’t reflected on the chart, since I started tracking this account later on when the account was at $4500 value).

When I was back at $2000 I realized that this wasn’t what I wanted. At that time I read a book “The Layman’s Guide To Trading Stocks” by Dave Landry (you can check his website) and I shortly communicated with Dave via emails. I described him my frustrations, his responses were funny, but he also gave away a great advice: “Stick with what you are comfortable with”.

That was the breaker. I knew it was dividend investing and that there was no quick rich method in trading. Thus I went back to the roots of investing and decided to stay with the most comfortable method = dividend growth investing.

My 2012 goal for TD account:

Honestly? I had no goal or nothing solid. Time to change it.

My 2013 goal for TD account:

Rebuild my portfolio.
Reach min $10,000 value of the account (after I reach this goal, I will start focusing on my ROTH IRA account).
Reach my dividend income of $100 monthly.
Reach options income of $100 monthly.
Raise cash to 30% of my account value.

Dividend income

The following chart shows my current income (it doesn’t have December complete as of this wiring). I will continue investing into stocks paying dividends at 3% or higher rate. The companies must have a great history of paying and raising dividends (with few exceptions in REITs). I will be purchasing only during price drops (either significant corrections or when the price retreats to support level). That’s a change in my approach. In past years I wanted to be always 100% invested. Not anymore. I want to wait for my price. When the stock reaches that price level I will use a formula (described here) to calculate my entry price. If the stock reaches that price I will buy.

I will do whatever it takes to increase my monthly dividend income to $100 a month and reinvest all proceedings. I will use leverage to boost my investments during this early phase of rebuilding my account.

Options income

I am not dashing options trading although I lost money. I understand risks of trading options, but I also see great potential options offer. In 2013 I will focus on learning basics and trading covered calls (CC) or cash secured puts (CSP). I will be selling puts or calls against my current holdings as well as buy-write covered calls strategy (buy-write CC strategy means I will be buying a stock and write a call option against it expecting the stock be called away – option exercised). I do not have 2012 track of my options trades and there were so many trades that recreating the track would be an enormous work, so no chart here. I will however track my 2013 results of option trading and post it. The goal will be reaching $100 monthly selling covered calls or cash secured puts.

The chart above shows my plan for 2013 and progress. I added December 2012 as my starting point.

Cash

Recently I realized the value of cash. In the past years I hated having cash idle in my account and I was striving being always 100% invested. Then a great opportunity arrived and I had no cash to act. Next, since using margin, I got hit by margin calls. I wanted this changed. My new strategy is contributing to the account when the holdings grow or the market is in uptrend, but leave it as cash in my account and use it as a collateral against put selling or buy-write covered calls. This strategy helped me a lot. I no longer experienced margin calls and I was able buying stocks which I wanted at better price. My goal in 2013 will be to raise cash to 30% and maintain such cash allocation (currently my cash is only around 4%).

I hope the next year 2013 will be prosperous, the United States as a country and republic will be able to steer away from socialism and communism and that we will all prosper. I like and love all of you who strive on your own to reach your goals and work hard. I like learning from you, because that is what helps me a lot reaching my own goals. Thanks for stopping by and reading.

Merry Christmas and Happy New Year!

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Posted by Martin December 14, 2012
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ABT dividends

Abbott Declares 356th Consecutive Quarterly Dividend

1:59 PM Abbott Laboratories declares $0.54/share quarterly dividend, 6% increase from prior dividend of $0.51. Forward yield 3.31%. For shareholders of record Feb. 15. Payable Feb. 15. Ex-div date Jan. 11. (PR)

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Posted by Martin December 09, 2012
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My experience with options

About a year ago I came across options. Somewhere on the internet I read an article how to use options to boost my income, get more cash to invest, and use options to buy stocks.

The strategy went as follow:

Sell cash covered puts to raise money to buy a stock you want to hold.
Either use proceedings from selling puts or sell a put option and get exercised or buy-write a covered call to get your stock.
Once you have your stock, continue selling covered calls and puts against the stock to get income.
If a covered call is exercised and your stock is called away, start repeating the process.

I was so thrilled about this idea to get money up front to buy stocks that I had to try it and master this strategy. I looked for a good candidate and picked, in my opinion, a promising company Oncothyreon (ONTY). At that point the stock was trading at $7 per share. As it was raising in value I was selling puts and collecting premiums.

A few months later I collected enough to buy the stock without paying a penny from my own pocket. The stock suddenly dropped in price to $4 a share when investors dumped the stock because of the news about postponing results from phase III drug (Stimuvax) testing. Instead of publishing the results during 3rd quarter of 2012, the results were postponed until the 1st quarter of 2013. The reason was to get longer time period for testing due to longer survival rate of the patients being tested with this new drug.

A question I asked was, if the survival rate was longer than expected, wasn’t this actually a good sign that the drug worked?

Well, long story short, because of the price drop and lack of my experience (instead of selling and rolling the put option) I was assigned at $7 dollars per share.

I wasn’t disappointed or mad about it. I wanted to hold the stock as a long term investment and, most importantly, due to selling puts prior to assignment, my adjusted price I paid for ONTY was $0.25. You read it correctly. I was assigned to a 7 dollar stock paying 25 cents for it.

I immediately started selling covered calls against the stock and puts generating income. Today I hold a stock, which on my brokerage account shows roughly 40% loss, but my adjusted loss is actually a gain. Yes this stock already allowed me to bring almost $1100 dollars into my pocket and I paid $700 to get the stock.

This was a success for me, so I jumped into trading advanced options. I doubled my money in my speculative TD account within 6 months (you can see the spike when I started following and recording my trades here). Well, later on I slowly gave up all my gains and ended up where I started about a year ago (the chart doesn’t show the very beginning). But that is another story.

Nevertheless, I finally learned my lesson and decided what I wanted. I stopped trading options for a while and started learning more about them to get back to trading options. Although I am in favor to dividend investing and I will be buying high quality dividend stocks (with a few exceptions, such as ONTY), I want also continue in practicing the strategy I described above:, sell puts to raise cash to buy the stock and later sell covered calls to generate income. With dividends and covered calls income I hope to boost my revenue and grow my portfolio faster.

I am adding ONTY into my TD account. Currently I hold it only in my ROTH IRA account. On Monday I will write-buy a covered call against ONTY. If the trade executes, I will be buying ONTY for $1.55 a share.

Happy Trading!

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Posted by Martin December 06, 2012
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FULL Full Circle Capital

Is Full Circle Capital (FULL) presenting itself as a buy?

I hold Full Circle Capital (FULL) shares in my portfolio. As I learned today, this company belongs to a business development companies category or BDC. These companies are investing into small businesses and many of them are regulated investment companies RICs. That means that this type of companies are required to pay at least 90% of their profit back to their investors. Due to the nature of their business these companies are very cyclical and sensitive to economic situation of the country.

Sometimes ago I purchased FULL and now I am holding 128 shares of this company. What I like is that this company pays nice dividends (12% yield) and it pays monthly. However, I wasn’t sure how to evaluate such company to decide whether it is worth buying, holding or selling it.

Recently I found a great article on Seeking Alpha which helped me to understand this stock better and evaluate it better. What I have read convinced me to continue holding this stock amid the recent turbulent trading, which scared me a bit.

FULL

As you can see, the recent drop in price was scary and I couldn’t find the reason for such sell off. Was this sell off a good opportunity to buy or should I dump the stock? After reading about the stock, that its book value is around $8.5 and the stock is trading at lower $7 level I realized that this can be actually a good opportunity to buy more shares.

What happened and why the stock dropped? I think the reason could be the recent public offering of new shares which were offered at $7.50 per share. The stock immediately corrected to that price.

Will this drop have a motion momentum and continue falling? If so, I will be adding another 100 shares of this stock into my portfolio. Thus I placed a trigger order (or contingency order) to buy if the stock falls at $7.00 per share or below.

Another reason for buying more shares is that today John E. Stuart a CEO of the company purchased 2,000 shares of the company, see here.

If the stock doesn’t drop at $7 a share or below I will not be buying.

Happy Trading!

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Posted by Martin December 04, 2012
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taxes dividends saving fiscal cliff tax hikes

How I am preparing myself for a potential price drop

We are still facing problems with “fiscall cliff” and nervous investors dumping their dividend paying stocks. The selling isn’t overly dramatic. Yet. But it can all come.

Since the presidential election, dividend paying stocks dropped in value. Even REITs and MLPs which are not affected by a potential tax hike were driven down by panicking investors.

Media are feeding us with scary tax hikes from current 15% up to 43.4 percent which may cause drop in stock value by 34 percent to make up for a lost yield. It looks scary, but in my opinion it will not be that bad as we are hearing and reading. Many long term investors have their assets in deferred accounts, so they do not have to worry at all. And since the dividends will be taxed as an ordinary income many investors (and even retirees) will end up in a lot lower tax bracket anyway (possibly 15 – 20% bracket) and after all deductions their effective tax rate would probably be even lower. So the impact will not be that large.

However, high earners will see some impact. All that will possibly cause a panic and horrendous selling. Maybe just to adjust the price of the stocks down by that 34 percent so the high earners dumping stocks at current prices will be buying them back again to get better yield on cost.

In my opinion this will cause the price rising back up. Not that dramatically as it will go down for sure, but prices will go back up.

Do you want to sell your stocks and buy them back later too or do you want to wait?

My strategy will be waiting, holding tight and buying more shares at better price as others will be selling in panic. Will that come?

I am browsing internet what others say about potential issues we may be facing and overall you can see a lot of pessimism out there. That makes me believe that investors will overreact, as is typical these days, and send stocks even lower if Congress won’t act and prevent tax hike in January 2013. Everybody is expecting it. A common opinion on the web is that dividend stocks prices are still in all-time highs which creates a potential bubble which may burst. I think it is nonsense but there will be enough people out there who would overreact.

That makes me thinking about my next plans and strategy for next few months. I am a believer in a strategy called Lifecycle Investing. The point of this strategy is using leverage when investing in early (accumulation) phase of portfolio building and start delevering down in second phase and be completely unleveraged by retirement.

This strategy then allows me using margin and other means to boost my investments now in early phases. Thus my portfolio is highly leveraged these days. For those who are skeptical about this strategy I can say I have been practicing this strategy for three years so far and I was able to manage all drops and panic selling without being hit with margin calls.

However this strategy isn’t for everybody, because during sell offs you need iron guts to sustain rapidly declining margin equity to maintenance requirement ratio. To survive I have to maintain healthy cash reserves and that is exactly what I am doing right now. When the markets and my holdings are growing, I save as much money as I can, but keep it in cash. Many times earlier in my “investing learning period” I wanted to be always fully invested. I learned that this wasn’t a great idea.

With free cash available I can sustain a potential drop in value of my portfolio and be ready for buying more shares when the sell off ends. Recently I learned, that value investors shall wait with free cash for great opportunities so they will be ready when the opportunities present themselves. Being fully invested is a foolish idea.

So how I am preparing myself? Saving, saving and saving. Sitting with cash and not buying more shares at this point and wait for the next drop in value.

Happy Trading!

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Posted by Martin November 30, 2012
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stock analysis market rally shakeout trend analysis

Will “Rally Attempt” hold?

Today the market (SPY) provided a follow up in its price action to yesterday’s break above the trend line. It can be a shakeout, but I still see it more likely as a bottoming pattern. Today’s price extended recent rally all the way up to 50 day MA, but it broke thru the two month long downtrend line on higher than average volume.

That doesn’t mean that we should be buying into this rally. We still should be sitting tight, saving cash for more buying and wait for more confirmation. I am still expecting a downward move from these levels. However, since the price extension is quite significant, I am convinced that the market will not go too low to create a new lower low, but it will create a new higher low.

Click the image to enlarge.

If that happens we may go down to 137 major support level. This level played a significant resistance and support role during May 2011 and March – May 2012 respectively. I think we may stop at that level if that is the case and move back up. That would be our first higher low.

That’s why I think we are experiencing a “Rally Attempt”. We still can fail and see even more extended down pressure if the negotiations in Congress about the fiscal cliff fail and who knows what else the politicians bake for us and what mess they create. Somewhere on the internet I read a note that they have no clue what impact their comments can have on public. I agree with it and all that can still change the course of the market.

So what’s next? Wait for confirmation, save more cash and let’s see if the market creates its first higher low and reverses. The Rally Attempt can still fail.

Happy Trading!

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Posted by Martin November 26, 2012
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(O) realty Income monthly dividends

New trade – adding Realty Income (O)

Today I realized a part of my planned buying of Realty Income stock. Maybe little too early since I am expecting more drop in price, but I will be buying more later if that happens. I am also planning on adding SDY to my portfolio, but this didn’t happen today and I moved my buy order lower.

Well, I am learning to better manage my money than before so I will be doing mistakes. Nevertheless I am still buying cheaper than my previous purchases, so I am OK with it in the long term.

11/26/2012 09:39:35 Bought 10 O @ 39.65

Total shares held as of today: 76
Estimated annual dividend: $138.32
Consecutive Dividend Increase: 14 years
Dividend yield today: 4.62%
Dividend 5yr Growth: 3.87%
Dividend paid since: 1994

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Posted by Martin November 25, 2012
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SPY market direction

Where is the market heading? Still in correction.

Recently I have read an article on internet by a dividend investor who claimed that he doesn’t care what the market is doing as long as his dividend income is intact or improving.

Basically this is a valid statement to me and I believe many dividend growth investors are not that much concerned about the market or anything else or even the holdings in their portfolio as long as their stocks are paying dividends and there is no danger of cutting the dividends.

So why I am concerned about the stock market direction?

Market timing

The reason why I would be watching the entire market and my holdings where they are heading is because the price correction offers me a better price to buy more shares. That’s it. Seeing my holdings falling, but dividend ratio is intact, I cherish this price action as a great opportunity to buy cheaper.

Recently during the last two weeks or so, this was a great time for me and I could add a few shares of some of “my stocks” to my portfolio. So are we done with decline?

Probably not. When you take a look at the market’s price action what is awaiting us in the next week? The market is still in clear correction phase and we may drop even further next week. There may be many reasons behind it such as fiscal cliff, worries of debt crisis in Europe and who knows what else.

Right now the futures point to lower open on Monday. The market (SPY) reached the resistance and may turn back down. Will we create a new lower low or are we experiencing a reversal when the market creates its first higher low? Time will show and for me this will be a waiting game and if we head further down I see it as a great opportunity to add more shares.

Click the image to enlarge.

See above picture what I see the market will probably do in coming days. If we see a reversal, this would be a last opportunity to add to my portfolio. If we see more downturn, I will be saving more cash to buy cheaper. Time will show.

Happy Trading!

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New trade – adding Gold ETF (GLD)