April 2011 Trading

April has proven to be a rather exceptional month...best to date!  I was able to take profit on a rather large long term holding (NGG) with a large gain as well as several smaller, short term holdings of primarily "premium" purchases with more modest 5-6-7% gains.   As a result, I've turned over the most holdings since mid-2009 as well as being the number one month in terms of realized gain.  I've also seen my unrealized losses eliminated.  I stand poised to match or surpass the April realized gains in May.

I remain at about 65% invested down from a high of over 80%.  I'm happy with this, but have mixed emotions.  On one hand, the market has been moving upward, and I wish to continue to benefit from this.  However, I'm also concerned that the timing is right for a correction.  I'm especially pleased that I was able to liquidate part of my index holdings before such a correction takes place. 

Dividends were modest this month and will be so in May.  If I continue to retain most of my current holdings, June will be the next large dividend month.  But as noted above, there are several holdings that are nearly due for liquidation.  But I'm always happy to trade large capital gains for small dividends.

Sales this month. 

• Colgate Palmolive Corporation - 5.5% gain, "premium" purchase held for a month.
• National Grid plc (ADR) - 12% gain.  Finally, after holding some of these shares for almost a year, I was able to make a sale for a nice gain.
•  Nokia Corp (ADR) - 5.5% gain, bought on bad news at very low price for very small quantity.  Since this purchase was based on bad news, I was pretty quick to get my 5% and get out which took a little more than 1 month.
• Merck & Company, Inc. - 5.5% gain, another "premium" stock held for less than a month.  I actually planned to hold this for a higher gain, but sold on the day before a likely government shutdown when most of the market was dropping like a stone.  Thought other purchase opportunities would be on the horizon, so opted to make my profit, sell out, then hopefully buy into something else in the coming days/weeks.
•  Johnson & Johnson - 7.5% gain, yet another "premium" stock held for about a month and a half.  Received big bump after earning announcement.
• General Mills, Inc - 6.5% gain, "premium" stock held for almost 3 months.
• iShares S&P 500 Index Fund - 5% gain.  First turnover of Index fund holding.  As a small bonus, Firstrade ceased charging a commission of this fund and a few other ETFs just before this sale.  That's another $6.95 in my pocket!
• Intel Corp - 15% gain, sold about 20% of my Intel holdings for nice gain.  These were held within my Roth account and I still have other shares in traditional IRA.  Although I only held for 15 days, this sale generated more income than I would have received if I had the whole account in CDs for over a year.

Current holdings and unrealized gains/losses are as follows. As you can see, there are several holdings at or near the 5% sell threshold.  And Intel is over 14%, so I expect to make several sales in May if this trend holds.  I also added two new holdings in the last few days of April.

The following dividends were collected. 

• SPDR S&P 500 Index Fund
• Sysco Corporation

Psychology of Round Numbers

I suppose it's human nature, but I've always set my limit amounts at round numbers.  For example, I've always bought at $14.00 or sold at $35.75.  Recent events have told me that this is not necessarily a good idea.

Last week I set a buy price for Nokia at $8.25. Unfortunately, the price bottomed out at $8.26 and I lost out on the run-up that occurred since then.  I've also noticed on several occasions that I hit a sell/buy price, but the order did not execute.  I suspect that this is because there were so many other orders set on the same price.  My transaction didn't fire because my order was in line after others.

Yesterday I had a a vivid demonstration of this effect.  I had a buy order for Harte-Hanks set for $9.70.  I carefully watched the Bid/Ask quantities as the price drifted downward.  The batch sizes were consistently under 10 until the bid reached $9.70.  At that point, the bid quantity was about 90.  Since my order was placed yesterday, my order did not execute until the price was hit many times and many other orders executed at that price.  If my price had been set at $9.71, my order would have fired much earlier with minimal additional cost.

Of course this lesson has mixed impact.  In the case of Nokia, I missed out on a nice gain.  But in the case of Harte-Hanks, the price continued to drop later in the day, so I would have paid extra for no benefit.

So, what's the practical benefit of this knowledge?  If I'm keen to execute an order immediately, I should set my limit price at non-round numbers.  One cent higher for buy orders and one cent lower for sell orders.  The exceptions are orders that are placed well in advance since I would be at the front of the queue for that price. 

Addendum:

Intel passed the $23 threshold today and demonstrated the same behavior described on the sell side.  The number of shares for sale at $23 exactly was an order of magnitude above those offered at $22.98 and $22.99. But this is another case where the number of shares was not an impediment as the price quickly passed through this threshold to close at a higher price. 

Full Time Investing?

The last few months of investing has been quite successful.  In fact, my periods of unemployment or underemployment have been among my best.  During these periods, I've had my four best gains and eight of my best tenmonths.

This has caused me to give a lot of thought to how I might continue this success.  And the fact that I was unemployed or under-employed during these periods really jumps off the page.

Based on these results,  it would be easy to try to justify continued unemployment as a sound investment strategy, but I don't think I can honestly do this.  Although I am able to make some marginal gains by watching the market carefully on a near full time basis, I don't think this can account for all difference.  The fact is that I spent more time formulating and reformulating my trading strategy during these periods.  I believe this accounts for these enhanced gains.  So it's important to continue to do this whether I'm working or not.

Report Card

At the end of 2010, I reviewed my performance and identified some areas for adjustments.  I've reported on my progress several times, so it's time for another look.

1. Take profits sooner (B+) - I've been doing better with new acquisitions, but am still holding on to the stocks that I've had for a while.  NGG is over 10%, but I'm still holding out for 11%.  Clearly this could burn me, so I've given myself a lower grade than on the prior reports.
2. Reduce or cap investment pool (C) - I've effectively done this by moving a significant investment into index ETFs.  Although I'm still considering these holdings part of the trading pool.  It's resulting in me being over 80% invested since mid-March.
3. Quit bottom feeding (B+) - I'm still holding my own here.  I've turned over several more premium stocks, but have not compromised my ability to pick up bargains when available.
4. Dabble in Index Funds (B) -  I've finally bought in and reduced some of the money that was sitting in a money market.  However, I'm still not sure how I will use these funds.  I'm leaning toward profit taking when available instead of buy and hold.  This is detailed in other posts.
5. Don't sweat employment (A) - I've been on the bench since February 19th.  Although trading has been good, I'm starting to get a little anxious.  I'm not worried about finances, but it's just getting boring. 

Overall Grade (B+) - I'm quite pleased with what I learned during this year end assessment and how I've improved my strategy as a result.  I'm going to have to repeat this evaluation at the middle or end of 2011.