April 24, 2014 Comments

On Thursday the S&P 500 was up 0.2% and Toronto was up 0.1%.

Some of my favorite stocks did well. Toll Brothers was up 3.3%, Melcor was up 1.9% (but it’s so thinly traded that it’s movements are sometimes just “noise”, nevertheless it feels good), Canadian Tire was up 1.5%.

The Wells Fargo preferred shares rose enough to hit my sell order at $21.95 and so that sold 40% of my shares in that. I have now entered an order to sell another 20%(of the original amount) if it hits $22.25 in the next month.

I should keep in mind that part of the reason that preferred shares rise in price is at times just due to value of an upcoming dividend. I now realize that for these preferred shares I should be keeping an eye on the dividend date. For example, I was pleased that the Canadian Western and National bank and Enbridge preferred shares had all moved a bit over the issue price of $25. But since these pay 25 to 27.5 cents per quarter, part of the reason for the increase is just that the next dividend record date draws closer each day. I would expect these shares to decline a full 25 cents or so every three months when they go ex-dividend and then to recover that 25 cents over the next three months. In addition to that they move around a little as interest rates move and possibly as the health of the companies change. This is all well known but really was not top of my mind because I have rarely owned preferred shares in the past.

The same applies for any stock with a material dividend – they will tend to fall in price by the value of the dividend when they go ex-dividend and then (all else equal, which it never is) they recover that ground over the next three months a the next dividend record date approaches. However most common stocks have small dividends and the price movements in the stock that are related to earnings outlook tend to far outweigh the movements associated with the approach of a dividends payment and it is really something that I have rarely considered when looking at a stock. That is, I would rarely if ever delay buying or selling a share based on an impending dividend nor would I factor in the impact of a pending dividend on whether the stock price was attractive. (I am talking about an impending single dividend) I do take the dividend yield into account and consider whether is attractive WHEN COMBINED WITH the expected growth rate.

I had an email today that asked if I put any faith in “rules”‘ like Sell in May or other seasonal patterns in stocks. The answer is, no I don’t put any faith in such rules. I basically studiously ignore all forms of “technical trading” rules. For example, I don’t use stop loss orders. I pay no attention whatsoever to “support” or “resistance” levels. Those things might work for some people but they are just not my approach to investing. All of those rules really treat investments as “squiggles” on a screen as opposed to treating them as ownership in real companies.

I do sometimes trim positions on gains and buy on dips. That is basically the opposite of what momentum and technical traders would do.

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