Taking a cue from Reasoned Investing, TheStreet.com is now posting official Mad Money recaps. Frankly I'm shocked they weren't already doing that. I'm going to try doing without watching Cramer for the week my parents are out here -- we'll see how the recaps "work" for me then.
InvestmentWizard has a date-based search of Cramer's picks as well, though they don't seem to distinguish between the lightning round and other mentions.
Upcoming quarterly earnings announcements for my holdings:
BBBB - August 2
NWY - August 18
PXR - August 2
TOL - Preliminary guidance call August 4; August 25 for the real deal
SHLD - Around September 7 (they last reported June 7)
You may know that the credit reporting agencies provide a number known as a FICO score. This is an important number to lenders, and you should know what yours is. It will determine whether you can get credit at all and, if you can get it, what your rates will be like. I had some credit difficulties a few years back and I have occasionally obtained scored copies of my credit reports to see how my credit is recovering. (Someday I'll maybe write more about my fiasco.) I've been wanting to monitor my report more closely to guard against identity theft.
Today I signed up for MyFico.com's Score Watch service. For $80 a year, they monitor one of your credit reports (Equifax) and send you e-mail and/or an SMS every time your score changes -- and any time anything happens that may impact your score, such as new credit inquiries or new accounts being opened. As it happens, this meets my goal of seeing how my score is progressing as well as knowing immediately if someone is trying to obtain credit in my name. Actually, I didn't pay $80, I used coupon code myFico144 and saved 10%. You get two free Equifax reports with the service as well. (You get one per year from each agency through AnnualCreditReport.com, but it's nice to be able to get a couple extras.)
So today I learned:
Sigh. Down $45 Thursday; up $65 Friday; down $60 today. Y'know, investing is really interesting when you're making money consistently for a week or more, but far less so when the market can't make up its damn mind. The Dow, S&P, and NASDAQ are all down, though, which makes me think it's not something wrong at the companies I've picked but rather a general market downturn. The "tech rally" isn't looking so good -- the Vanguard tech SPDR (XLK) has dipped below where I bought in -- but I'll give it a few months.
But Paxar (PXR) was up 28 cents today. I'm starting to make some money with that little company. The company was up around $25 in March, which means it may well be headed back up that way.
I'll probably stop doing the day-by-day reports except when something really interesting happens, so expect somewhat less posting here in the near term.
Unusually large gains in a stock are often followed by profit-taking. Unusually large gains in a stock are often followed by profit-taking. Unusually large gains in a stock are often followed by profit-taking. Unusually large...
This is my mantra this morning, for I have awakened to discover that my portfolio has lost $110. SHLD down $3.60, TOL down $2.15, even PXR is down $0.53 and is now below where I bought it, and Blackboard (BBBB) is down thirty cents. The biggest losers are also the biggest recent gainers. Tech rally? Smech rally, more like: XLK is down sixteen cents.
Damn you, Mr. Market! Why can't you continue to give me free money indefinitely? That is all I have ever asked of you!
Unfortunately, my transaction costs are high enough as a percentage of my holdings that I'm wary of trying to time the profit-taking to get back in at a lower price. There's no guarantee I'd be able to sell off right before the price goes down, no guarantee that it will in fact go down, and of course no guarantee that it will go back up after I buy in again. So I might as well keep 'em.
In better news, NWY is up sixteen cents, as is EEM. NWY's rise, along with TOL's and BBBB's decline, has totally rearranged my top three gainers again: now it's NWY, followed by TOL and BBBB.
If I reload my Scottrade account all these numbers will change, which is why I usually talk numbers only at the end of the day. But I just had to share with you the horror... the horror... I need some coffee, and I don't even drink coffee. Usually.
Easy come, easy go... I'll keep holding on, since now I have "only" made $900 in two months on a $7000 contribution, and meeting my goal of 20% will require me to make $1400 by the end of the year.
Update: The final tally was not nearly so disastrous; I closed down only about $45.
Last I reported a price for Neenah Paper (NP), on July 7, it was selling at $31.09. This looked good considering I sold it on June 30 for $31.17.
It is now trading at $33.50, which is pretty close to the highest it got while I held it. This was a Motley Fool "Hidden Gem" -- they recommend holding those stocks for at least three years, so I definitely broke the rules on that one. I sold it because I wanted to put the money into a stock that was going to give me a little bit more action in the short term, which is, in hindsight, kind of lame. Of the three stocks I bought shortly after selling NP, the Sears (SHLD) has done very nicely (up more than 8%), but the other two have far underperformed NP's recent move. So how successful a strategy my NP sale was depends on which of these stocks I consider its successor, which is purely a bookkeeping matter. I'll keep watching NP; perhaps it's worth getting back into soon.
The good news is that I have decided to have at least the ability to hold Hidden Gems for at least a year by buying only one of them every two months. That's still shorter than they really recommend, but many of their picks do show good movement in the first year. At least I'll be able to give each a good chance to move before I sell it. I will be able to hold them longer as I add more chunks.
Lennar Corp (LEN) is at $67.81; I sold at $64.56 on July 7. Toll Brothers (TOL) has done quite a bit better, so of the two homebuilders I had in my portfolio, Lennar was definitely the one to sell. (You may recall I was uncomfortable having two "chunks" in a speculative play, so wanted to keep just one.) Thus far it looks like I made the right call there, though as with NP, LEN may have done better than what I replaced it with, depending on what you consider that to be.
Sunny and seventy degrees here in Bellevue, Washington, and the portfolio is on the rise again. +$48.89 is the tally for the day. Blackboard (BBBB) was down 9% at one point today, but it ended up closing down only a little less than 3%. That's kind of a bummer, but Toll Brothers (TOL) was up $1.35 (2.37%), Sears (SHLD) was up a whopping $4.65 (2.93%), and New York & Co. (NWY) was up 45 cents (1.96%) on news of their acquisition af Jasmine (that $700 a square foot should really help NWY's bottom line). Even my Paxar (PXR) was up a dime. EEM was a penny higher.
With TOL and NWY moving up and BBBB moving down, TOL is now the #1 gainer in my portfolio, NWY is #2, and BBBB is #3.
The "tech rally" stumbled with some lackluster earnings reports last night after the bell and XLK closed down 7 cents -- I'm about even on that (I have made just enough money to pay the commission if I were to sell it).
This is the kind of day in the market I really enjoy: up $63, and $53 and change away from making my first additional "chunk" (and $453 away from my goal of 20% on the year). My Sears (SHLD) was down 61 cents, but then it's had two days of strong gains in the past week (up $2.17 on the 12th, up $1.58 just yesterday) and I'm still up 3.3% on it. A gain of 36 cents a share in New York & Co. (NWY) brings my gain on that stock above 20% again -- that makes three I'm up at least 20% on (Blackboard [BBBB] and Toll Brothers [TOL] being the others). Speaking of TOL, can you believe I said I'd be willing to sell that at $53.50? That would have been stupid; it's $3.30 higher now.
Staid IBM reported strong earnings last night after the close of the market (it sent their stock up nearly two bucks today) and with that, it's beginning to look like the 2005 summer tech rally is on -- my shares of the Vanguard tech sector SPDR (XLK) were up 31 cents each. I hope to see more good news from tech in the next few weeks.
My goals for 2005 included:
Make the maximum contribution to my 401(k). My employer doesn't yet do any matching, so it's not the screaming wicked deal it is at some companies, but it's nice to have that money taken out of my paycheck, allocated to various mutual funds, and basically forgotten about. Anyway, I had been contributing $400 per paycheck (twice a month), but when I got my raise this past spring, I upped it to $650 per pay. So I'm on track to max it out for this year and also for next year.
Make the maximum contribution to my IRA. Made the last $1000 contribution today, so: mission accomplished. I like having a Roth because in a dire emergency, I can pull my original contributions out with no penalty. Thus it serves two purposes: a safety net and a forum for learning about investing in individual stocks.
Keep a lid on my recurring monthly expenses. Every few months I like to take a look at where my money goes and see if I can find any way to tighten my spending a little. For example, I did have Vonage's $20-a-month unlimited calling plan, but I noticed that their $15-a-month plan that only includes 500 free minutes was a better fit. (They charged me $10 to switch plans, the bastards!) I splurged on Internet connectivity (I have Comcast Business Internet, it is pricey) but I made a hosting/webmastering deal that defrays some of that cost. I hardly ever use my cell phone and currently have T-Mobile's $20-a-month plan, but I will be switching to one of their prepaid plans (1000 minutes for $100, good for a year, which works out to a little more than $8 a month) -- I just have to call them and make sure I can still get an add-on data plan for the two months a year I need it. I dropped my NetFlix subscription to the lowest tier, that's another $10 a month saved. And I really should call up AOL and threaten to cancel again so they'll give me some more free months, or just, you know, cancel for real and save that $10 a month too. I'll be shopping around my insurance again soon, although nobody has ever managed to beat State Farm in the past. Those things don't save a lot individually, but it adds up. Now if only I could cancel the DirecTV. I can download every single one of the TV shows I watch regularly for free, but that's technically illegal. Still, I'm paying $500 a year for that.
Do something with the photography. This is a personal growth goal as well as a financial one. It is unlikely, given the amount of money I spent on the new camera setup in 2005, that I'll actually make a profit on photography this year. However, with my work hanging at Maia Skin, I hope I'll be able to sell at least a few prints. And of course since I'm now pursuing it for profit, I can write off the cost of the prints and framing as well as my gear. (Technically I suppose I could have taken a writeoff last year, which was the first time I had work hung in a gallery, but I didn't spend a lot of money on photography in 2004, so it wouldn't really have been worth it.) In the coming months I will also set up a Web site to sell prints. Art walk in Mukilteo on August 4!
Save up least $10,000. This will be the tough one. In theory I should be able to do this, but my parents are flying out for a visit next month and I promised them I'd show 'em a good time; then there's Christmas, with the trip home and gifts. And, of course, there's a Tablet PC in my future -- the small one from Motion, most likely. And a couple more lenses for the ol' camera and maybe an actual vacation. With all that, I'll be lucky to come anywhere near my goal. I do have some unneeded possessions I'll be liquidating to help finance my new acquisitions, which will help. (Anyone want a pair of Vandersteen 2Ce speakers? They are great, but I just don't have room for 'em.) At the very least, I'd like to be able to make my full Roth contribution for 2006 on January 1 of next year, and that'll require $4000, a much more attainable goal.
If I can quell my techno-lust and put most of my second paycheck into savings each month starting in 2006, I'll reach $50,000 in savings around the middle of 2008, right around the time the last negative items finally fall off my credit report, and I'll be ready to start thinking about buying a house by the time I hit 40, which is a nice round number to have as a goal.
Overall a decent day, even though my total gains were only $12.44. Sears Holdings (SHLD) was up $1.58, and Toll Brothers (TOL) was up another 33 cents. My iShares Emerging Markets (EEM) shares wer down 22 cents and my Paxar (PXR) was down 11 cents. Even Blackboard (BBBB) was down three cents.
As expected, I made another $1,000 contribution to my Roth (the final contribution allowable for 2005) and put most of that to work immediately by buying 43 shares of Vanguard's Select Sector Technology SPDR (XLK) for $20.93 apiece. I considered just getting cubes (the NASDAQ 100 ETF, QQQQ), but in fact a lot of the stocks I'd expect to benefit from a tech rally trade on the NYSE or AMEX. XLK consists of 89 tech stocks from all three major exchanges, selected from among the S&P 500. So we'll see if Cramer's tech rally materializes; if it does, I'll be positioned fairly well to benefit from it.
I didn't put the full $1000 contribution into XLC; I kept out about $100 in cash. (I did the same thing when I bought SHLD.) That gives me a total cash position of about $275. As I take profits in some of my other holdings later this year, I'll add the proceeds to the cash position to build another "chunk" so I can have holdings in another stock.
Wow. Nearly every single stock I own was down today. BBBB down a dime, EEM down 41 cents, NWY down 8 cents, PXR down 27 cents, SHLD down 66 cents. The sole winner was TOL, which was up... $2.17. Two dollars and seventeen cents. TOL closed at $55.97, which is huge enough to let me actually come out ahead by fourteen bucks on the day. I hate seeing so much red on my Scottrade screen, but the only number that counts is the total gain or loss.
There are three basic approaches to investing in the stock market: growth, income, and value.
The Growth strategy looks for companies that are poised to grow. The basic idea is to find companies that are going to grow more quickly than anyone expects them to (since their current anticipated growth rate is "priced into" their current stock price). Usually these are small to medium sized companies with plenty of room for growth. Often these are regional companies going national, or national companies going international. The primary risk is that the company will not grow as quickly as anticipated, sending the share price into a tumble. But when a good growth stock takes off, watch out! These can be some of the most profitable stocks to own. Think Wal-Mart or Microsoft before they were household names. These are the kinds of stocks Peter Lynch likes (although he also likes some kinds of value plays).
The Income strategy focuses on dividends. Income investors typically buy stock in large, mature companies that are not growing but which have very good cash flow. Since the companies are not growing any longer (usually because they are already as big as they can get), they typically pay their profits out to shareholders in the form of dividends. Utilities are usually income stocks but so are a lot of other stocks. If you buy a company's stock for $20 a share, and they pay you $1 a year in dividends, then after twenty years, you essentially have not paid anything for the stock. Well, there's inflation -- the dollar in dividends you'll get in 20 years is not worth the same as the dollars you bought the stock with -- but we'll ignore that for now. In any case, after receiving $20 in dividends, you'll still own the stock, and you can either cash it out and take your profit or continue to hold it and receive more dividends. The primary risk is that a company will fall upon hard times and need to decrease or even eliminate its dividend. However, a solid income stock is a good stock to own during retirement. You'll earn much more than a savings account with only modest risk, particularly if you're diversified.
The Value strategy looks at a company's fundamentals in search of companies that are undervalued by the market for one reason or another. For example, the price-to-earnings ratio (P/E ratio, the ratio of the share price to the earnings per share) of the overall market is 20. If you find a company that is selling at a P/E of 10, it might be a fantastic discount if the company's fundamentals are otherwise sound. If you find a good company at a discount, the theory is that eventually the market will take notice of them and their share price rise until it falls more in line with the rest of the market. (Actually, different types of businesses often have different "normal" P/E ratios, so you can't always assume a company with a P/E around 20 is fairly valued by the market, but this is a detail.) There are other measurements of value that one can use to determine what a company's stock price "should" be, and most value investors use several. The primary difficulty with a value strategy is that, because the market is mostly efficient, most companies that are trading at below the market average P/E are below-average companies! The company's poor prospects have been "priced into" their stock's price and they are fairly valued for what they are. For obvious reasons, relatively young companies are more likely to be overlooked by the market than established ones, but these same companies might not have enough of a track record to allow you to accurately calculate what they "should" be worth in the future. You might really have a growth stock on your hands, in other words. Warren Buffett is almost exclusively a value player, although he buys companies rather than stocks.
There are a few angles on value investing. For example, in an "asset play" you calculate how much the company's assets are worth and compare that to the share price. For example, if if a retail company owns real estate worth $15 a share and the stock is trading at $20 a share, the market is valuing the retail portion of the business at a mere $5 a share. In many cases this is ludicrously low. In any case, it's insurance of a sort -- if the company goes out of business, you have a claim on $15 of the company's real estate for each share you own, which means your shares are unlikely to fall below that floor. Particularly exciting is when a company is carrying assets on its books at what it paid for them twenty or thirty years ago, during which time they have appreciated tremendously. In rare cases, the appreciated value of the assets can actually exceed that of the stock, meaning that when you buy the stock, you get the rest of the business for free -- or are even paid to take it!
Another kind of value play is the turnaround. When a company stumbles, the market often overreacts and cuts the share price dramatically. Such stocks can be great bargains, especially if the company's board of directors (the representatives of the shareholders) bring in new management. The stock price will soar if the new management proves itself.
The best investments combine more than one strategy or angle. If you find a company that pays a great dividend and is still growing, that can be excellent! Not only will you get a yearly dividend, you'll also probably see your shares increase substantially in value if the company's growth exceeds expectations or if they increase their dividend. If a growth company stumbles, or is in a boring business (like death care or insurance), it can become undervalued even while it's growing, making it a turnaround or plain old value play in addition to a growth play. Small companies that switch management teams when growth stalls, as Flamel Technologies (FLML) recently did, can be very attractive.
Right now I'm not really an income investor. All my stocks are growth and value plays or combinations thereof. Blackboard (BBBB), New York & Co. (NWY), and Paxar (PXR) are almost pure growth stocks: their increase in value is expected to come from growing a relatively small business into a much bigger one. No surprise there, as that's the kind of stocks that the Motley Fool's Hidden Gems newsletter focuses on. There are plenty of universities in the United States to which BBBB hasn't yet sold its software, not to mention institutions in the rest of the world. NWY is nowhere near saturating the market with its stores, and year-over-year the company is selling more and more in each existing store. PXR is the dominant player in tagging and branding for clothing and is trying to expand into the RFID space which, after all, is just another form of tagging. If I were to buy Cheesecake Factory (CAKE), it'd be a growth play.
Sears (SHLD) is a value play, a combination of asset (excess commercial real estate currently tied up in unneeded K-mart stores) and turnaround (under new CEO Eddie Lampert). Toll Brothers is basically a sector value play -- homebuilders as a group are considered undervalued. Some analysts believe that homebuilding has ceased being a cyclical business and is now secular -- that is to say, it is no longer subject to business cycles (like interest rates) and can continue to grow long-term. I don't buy that, but I'll happily make money holding TOL while the sector's hot.
My sole exchange-traded fund, the iShares Emerging Markets fund (EEM), is a pure growth play. Emerging markets are countries in which the entire economy is really just getting started. There's a lot of risk, but that can be ameliorated through diversification, which is exactly what you get with a fund. EEM invests in dozens of different Asian, Eastern European, and Latin American companies.
I've talked about investing, where you buy stocks and hold them for substantial periods of time, but you can also do a value-style short-term trade based on the knowledge that the market overreacts to bad news. For example, if you buy Pixar (PIXR) right now, after they took a 10% or better dive on news that the DVD of The Incredibles might not meet their expectations, you'll almost certainly see the stock go back above 50 within a few weeks or months. The market is afraid PIXR is like Dreamworks Animation (DWA), which makes mediocre films and recently has had not only a shortfall in Shrek 2 DVD sales but also something of a box office disappointment in Madagascar. PIXR is not DWA, though; it has Steve Jobs and John Lasseter and Brad Bird, while DWA has, um, well, Jeffrey Katzenberg and, okay, a deal with Aardman, which is a plus, but they put out three of their own CGI films for every Aardman flick. I have no doubt PIXR will rebound soon and then some. I'm considering putting my seventh chunk into it for a couple months, in fact.
Do you know the forces driving the price of each of your stocks? Is it growth, value, income? If not, sit down and figure it out. What you find may surprise you.
When I checked my Scottrade account this morning, I saw I was down $50. Gasp! Choke! Panic in the streets! Dogs and cats, living together! Sackcloth, ashes, we all fall down! Why, God, why?
When I saw my portfolio making $50 and $100 gains on some recent days, I knew it couldn't go on forever any more than a tossed coin could keep coming up heads forever. It's good sometimes to be reminded that if your portfolio can go up $50 in a day, it can just as easily go down $50 in a day. Thankfully, my stocks rallied a bit, but I still closed down about $27 -- more than sufficient to erase yesterday's gain, and my first down day in a couple of weeks.
What's happening? Well, new 52-week highs are often followed by profit-taking, and three of my stocks -- Blackboard (BBBB), Sears (SHLD), and Toll Brothers (TOL) -- hit new 52-week highs yesterday. In the case of at least TOL, yesterday was in fact the second day in a row a new 52-week high was reached, possibly even the third (it's a little hard to tell from the chart). According to Jim Cramer, over 700 stocks hit 52-week highs on Monday (or was it Tuesday)?.
So today, BBBB is down 24 cents and TOL is down a whopping buck-forty. SHLD was down 75 cents during the day but rallied nicely and closed up four cents a share. Yeah, and TOL has done that to me before, too, those bastards. I mean, it's now only modestly above $53.50, where I once said I'd be happy to sell my shares and take a profit, instead of wildly above $53.50. What gives?
I'm still solidly in the black on all my stocks. In fact, BBBB is stil up 25% from where I bought it. I've even made 3% or so on Paxar (PXR), which I just bought recently; it was up a dime today. My iShares Emerging Markets (EEM) was up 43 cents and even my New York & Co. edged up seven cents after being down as much as 40 cents during the day.
Having a down day is no big deal. Over time, the good picks will out. It's a series of down days that you've got to worry about! Know why you're in each stock (trade or investment) and when you expect to get out of each (at what price, at what time, or after what trigger event) for both upside and downside. And when you have a down day, double-check the fundamentals, look for bad news, and if everything still looks good and your expected exit point hasn't been reached, just let it ride. Some of my investments are short-term, some are long-term, but on each one I know nothing of substance has changed, so I'm still keeping every one of them.
Update: TOL apparently has been seeing some action in after-hours trading; it's now down only 84 cents on the day (an improvement of 56 cents) and my total loss for the day is $14.70. I have occasionally seen minor fluctuations after the market closes; this is pretty big by comparison.
If you're wondering what has worked in investing, Tweedy, Browne can tell you. Meanwhile, Third Avenue Funds offers 37 underlying assumptions of value investing. Both PDFs (get Acrobat Reader if you don't have Mac OS X); both worth reading.
Looks like I may have made a mistake buying the iShares Emerging Markets ETF (EEM) ranther than Vanguard's VWO. According to this article, VWO has more diverse holdings, a better track record, and lower expenses. I won't bother getting out of EEM right now due to commissions, especially since it's moving up nicely at the moment, but if I ever want another chunk, I should probably think VWO instead.
I received news of an unexpected windfall today which will allow me to contribute 2005's fourth and final thousand by the end of the week. So I've got to start thinking about what stock to put that chunk into. Since I won't be buying another Hidden Gem until September (to allow me to hold each for at least a year), I'm thinking NASDAQ index (QQQQ). If Jim Cramer's right and there's a summer tech rally ahead combined with an overall bull market, this is probably a good place to be. I could also pick a tech sector ETF, such as Vanguard's VGT. This will probably be a fairly short-term holding, 2-4 months at most..
I closed up $63.19 today for a total of $6857.79. Five of my six holdings were up, led by SHLD at +$2.17, EEM at +$0.88, and TOL at +$0.63 (PXR was down 21 cents, BBBB basically balanced it out by moving up a quarter). I'm within spittin' distance of my first "earned" chunk of investment capital.
(As a reminder, my chunk, or "dose" as Russ Towne likes to call it, is $1000 -- I invest about this much in each stock I buy. Sometimes a little more, sometimes a little less, depending on what I'm trying to do with my cash position. My last purchase, SHLD, I only bought $900-ish of since I'm trying to build a little more of a cash position to eventually get that extra chunk.)
... it splits for thee.
I said I'd consider selling my shares of Toll Bros (TOL) if they hit $107 pre-split, which would be $53.50 post-split.
They did -- in fact, they closed at $53.96 today, after wafting well above $54 for part of the day -- but I held on to 'em. This company (like many of the homebuilders) is still undervalued in terms of P/E, all the major builders have strong backlogs, and some analysts still have this stock as a buy (the other analysts covering it have it as a hold). I'll stick to my plan to hold it at least through next month's earnings report and possibly longer. I'll be looking to see whether the backlog increases or decreases and what analysts think of that. My naive inclination is be wary of letting backlogs increase too much -- at some point some of those folks will start looking elsewhere for their new house, so you gotta start bringing on more contractors to build faster. If they're not doing that quickly enough, there might be a problem.
I'm up $83.91 on the day, which is slightly disappointing only because I was up $140 when I got out of bed this morning. (Scottrade recently added a feature where they tell you how much you've gained or lost for the day so far. It leads to compulsive page-reloading.) Ah, the joys of living in the Pacific time zone: sometimes you make money while you sleep, and lose it while you're awake. Nice to see Sears (SHLD) making a $3.12 move; that helped.
My New York & Co. (NWY) was down nearly a buck a share today -- probably profit-taking after its recent rise from 19-ish to 23-ish. The company announced last Thursday that it had met expectations for the second quarter. Earnings announcements often seem to trigger profit-taking, especially when a company "merely" meets expectations. I hope to see it move back up this week.
I missed "Mad Money" last Friday -- I assumed it wasn't on, as my TiVo had recorded golf! Fortunately, Reasoned Investing has the summary. Gotta have my daily dose of Cramer! (Although I have to admit, reading about his show isn't nearly as fun watching it.)
Toll Brothers (TOL) split recently. What the heck is a "split," why does it happen, and what does it mean for the stock?
In a split, the company issues one or more additional shares for each share already outstanding. Usually it's a 2-for-1 split, which means investors who have 100 shares suddenly find themselves with 200. (There are also 3-for-2 splits and 10-for-1 splits and various other permutations, but 2-for-1 is the most common.) Since the company's prospects haven't otherwise changed, however, each share is now worth half what it was worth before the split.
Companies do this for a couple of reasons. First, a lot of individual investors feel that a stock over $100 (or some other arbitrary price, but $100 seems common) is "expensive," so reducing the per-share price to under that threshold makes more people willing to buy the stock. Obviously the per-share price shouldn't matter one bit; what really matters is how much of the company you're getting for your dollar. That stays the same in a split, so the stock isn't really any cheaper; you just get half as much ownership per share as you did before, and twice as many shares. Still, people can be silly, and if they're more willing to buy, it increases liquidity (i.e. the number of shares being traded), which can be slightly beneficial.
Another reason companies may announce a split is simply that it's a sign of a growing company with a rising stock price, i.e. it is like a peacock's tail that shows off the company's health. In other words, it can be a PR move to draw attention to the company's recent achievements.
Last but not least, it's my understanding that occasionally, dividend-paying companies will split the stock as part of a substantial dividend increase. If they're paying $1 per share, and the number of shares doubles, a $1 per share dividend doubles too. If they were going to double the dividend anyway, a stock split can allow the company to continue saying "we pay $1 a share dividend." (Since the stock is half the price, the yield as a percentage doubles, just as it would if they had just increased the dividend to $2 a share.) I am not an income-oriented investor, so I don't know how common this is or, really, whether it's even true.
Not all companies have stock splits. Berkshire Hathaway (BRK.A) has never split and now trades at more than $85,000 a share. As a result, BRK.A is owned largely by professional investors and institutions (mutual funds and the like) -- most ordinary individual investors are loath to put so much money into a single share of a stock. (Berkshire also has a B-class stock, BRK.B, that trades at a "mere" $2800.)
Google (GOOG), whose management reportedly admires Berkshire CEO Warren Buffett, seems to be taking the same approach; it's in the the $300 range, and since many stocks split when they hit $100, GOOG "should" have split twice and be trading around $75 with four times as many shares outstanding as it has. Sears Holdings (SHLD) is another one that's above $100 with no split in sight. Basically, if they're trying to emulate Buffett, you'll probably see few stock splits, though not all companies that don't split are emulating Buffett. A benefit is lower volatility in share prices; the pros aren't going to panic as readily as Main Street investors on bad news. However, because there are fewer potential buyers, there's less speculation in the stock and less buying pressure -- the highs won't be as high. Buffett and his ilk are fine with this, as they're not speculating. BRK.A is probably pretty fairly valued.
Stocks also sometimes have a reverse split, in which investors give up one or more share of stock for each group of shares they own (e.g. 3 shares become 1). This has the effect of multiplying the per-share price by, in our example, three. It should be called a "merge" rather than a "reverse split," but that's "genuine Wall Street gibberish" (tm Jim Cramer) for you. A company doing this is usually in real trouble; its stock price has likely tumbled and it is in danger of being de-listed from one of the major exchanges. There is a minimum share price of $5 for the NASDAQ, for instance, and companies have often executed hefty reverse splits to get above the minimum. I've heard of 10:1 and more.
Once it was not uncommon to see an "expensive" (on a per-share basis) stock achieve a nice rise in the week following its split as investors start picking it up just because of the psychological issues I've already discussed. Why did it largely stop? Well, if a "bump" on a split becomes a common occurrence, it becomes predictable, traders notice and start buying stocks upon announcement of a split in anticipation of the post-split rise. (Usually a company announces a split a few weeks before actually executing it. TOL announced its split on June 9.) The actual split is often anticlimactic, as these short-term traders sell off their shares to the clueless who are buying it because it now seems "cheaper" to them. This is an aspect of the "efficient market" hypothesis: anything that can be predicted about a stock's future price will be factored into the stock price as soon as it becomes known, because people will buy (or sell) the stock to try to take advantage of this foreknowledge.
It should be interesting to see what happens to TOL post-split. I will of course keep you up to date.
It's been said that the best way to make sure you understand something is to try to explain it to someone else. As a relative novice investor, I want to make sure I've got it right. That's why I posted a lengthy article on here about limit orders. Since I just experienced a stock split, I've got another article in the queue on that topic too. Posting here helps me and hopefully it'll help other people too.
Also, posting here helps keep me on the "strait and narrow" (yeah, that's "strait," as in the "Strait of Gibraltar," i.e., a difficult passage, not "straight"). Frankly, when I was buying stocks yesterday, I was tempted to buy some Cheesecake Factory (CAKE) or UnitedHealth Group (UNH) instead of Sears Holdings (SHLD). But I hadn't really done my homework on either stock and I'd never even mentioned UNH on this blog. It would be a complete surprise to my readers were I to buy UNH, and I'd have to explain here why I'd changed my mind and picked it instead of SHLD. (Okay, my readers are largely hypothetical right now. But I'm perfectly happy just pretending.) Stocks are one thing you should never impulse-buy!
The third reason is to give me a record of my thinking so that I can periodically review my progress. As I gain more experience, I fully expect to be able to see the mistakes I made early on. When I do, I intend to point and laugh at myself.
I mentioned that I subscribe to the Motley Fool's "Hidden Gems" newsletter, and I've noticed a number of people landing here from Google searches for "Hidden Gems" or "Motley Fool," apparently hoping to find the newsletter's stock picks without having to pay the $199 a year Motley Fool wants for the publication. You might consider such tactics Foolish (a good thing in Motley Fool parlance) -- after all, you're seeking to pay the least you can for your investment advice. When I buy one of their picks I will most likely mention that's where I got it from, so yeah, if you're just interested in those of their picks that I've bought, which will be about 6 a year at this point (out of 24 main recommendations), you will probably be able to find those here on this blog without subscribing.
As a guy who makes a living writing, however, I am fully sympathetic to the desire of the Motley Fool guys to put food on their family. For this reason, I will not spell out "Hidden Gems" in the future when I mention one of their recommendations. Instead, I'll spell it using alternate characters (perhaps "H1dden Gem5") so people won't be able to Google for it so easily. Also, I hereby pledge never to mention any of their picks that I don't buy. This month's already out of the bag, I guess, but it won't happen again. Of course, if you just read this blog to get the picks (just a quarter of them, remember!), you will also miss out on Tom Gardner and company's analysis and interviews, the watchlist, the Tiny Gems, the scorecard, and the discussion forums. Also keep in mind that I may not, in fact probably will not, buy any Hidden Gems picks immediately after the newsletter comes out, so there will likely be a delay of a week or two (or even a month) before I mention what I've bought.
So far I have found "Hidden Gems" to be well worth the $14 and change I'm paying for it each month. (I signed up for two years and got a discount.) I've already made my entire two-year subscription cost back and then some, and I've only been signed up since late May! So those of you looking to get the picks on the cheap, well, it's not that expensive to begin with. Skip a pizza or a few lattes or a CD each month, and you can afford it.
That said, if you are a subscriber to another similarly-priced Motley Fool newsletter (perhaps "Inside Value") and would like to swap by post, let me know. They send a paper copy, and it is perfectly valid to trade or even sell these due to the "doctrine of first sale" in copyright law. It's the same legal principle that lets you resell, trade, or give away books, magazines, and CDs that you have bought. Basically, you mail me yours each month and I'll mail you mine. It'll take a few days longer to get it, but the advice is still good. Send e-mail to invest AT this domain if you're interested. This offer is open to one person only, obviously.
Update: The offer has been taken! Thanks Brad!
Aha. I've received my eleven extra shares on Toll Brothers (TOL) due to today's 2-for-1 split. Oddly enough Scottrade still lists them in my Positions table at $103.96, so it looks like I suddenly have an extra $1143.56 in my account. I imagine that will change the next time a trade gets executed in that stock -- I'd expect the price to be more like $51.98 now. The $107 I said I might consider selling at? That'd be $53.50 post-split.
The limit order is a valuable tool you should probably be using on nearly every trade. If you're not familiar with the concept, a limit order basically lets you specify the price at which you want to buy or sell a stock. This can be higher (in the case of selling) or lower (in the case of buying) than the most recent market price. If anyone is willing to buy or sell at your limit order's price during the trading day, it will be filled. Limit orders can be set to expire at the end of the day or only when you manually cancel them ("good until canceled").
You can use limit orders to automatically buy or sell a stock when it reaches a target price. For example, if you've decided that TOL is risky above $105, you might put a sell limit order in at that price. If you think SHLD is a bargain at $140, you could put in a buy limit order at that price. Mark 'em "good until canceled" and if TOL should ever go above $105, it'll be sold; if SHLD should ever plunge below $140, it'll be bought. "Good until canceled" means just that: the order could be executed today, tomorrow, next week, next month, next year -- or in fifty years -- as long as you don't cancel it. This can be a risky; if SHLD falls below $140, it could mean that the company has just announced some terrible news and is no longer a good investment, or it could just be normal volatility. So you have to follow the companies on which you've placed buy-side limit orders carefully and cancel or change your order as situations warrant.
Even if you've decided to trade a stock at market price, you can still use a limit order to get a slightly better price than you might otherwise, if you're willing to wait a few minutes. The prices of most stocks fluctuate by a few cents pretty much continuously as the supply/demand curve shifts, even if the price isn't moving much from day to day. So you can often hit a better price than the one you just were quoted by putting in a lowball limit order. I did this on all three stocks I bought today and saved at least a nickel a share on each purchase. The trades were executed anywhere from five minutes to an hour later. (SHLD was the laggard; it had just started to move up as I decided to place the order. But it fluctuated back down later. It fluctuated even lower after my order was filled; I should have been a bit more aggressive with the limit.)
Limit orders are also essential if you trade after hours, because some traders will offer to sell at ridiculously high prices or to buy at ridiculously low prices in the hope that at some point their oddball order will be the highest bid or lowest asking price. This is much more likely during the low-volume after-hours session than during the trading day, and especially with thinly-traded stocks. If this happens, anyone who naively issues a market order will pay way more than they should to buy the stock, or get way less than they should on a sale.
Note that a limit order is not the same as a stop-loss order, which automatically sells a stock if its market price dips below a specified level. If a stock is trading at $50 and you issue a limit order to sell it at $40, the order will be executed immediately at $40 because such an order is essentially an offer to sell at $40, and what moron woludn't snap up a stock that's selling on the market for $50 at a 20% discount? You'll be able to buy your exact shares back within seconds, no doubt -- at $50.
The nice thing about Scottrade is they charge the same price for limit orders as for regular market orders. And no, you don't pay the commission until the order is filled; however, your transaction amount is removed from your tradeable cash while the order is in effect. You can change or cancel limit orders anytime, although there can be a lag in doing this, so sometimes your order might get filled before your change or cancellation reaches the market if your limit is close to market price. Once you understand the caveats of limit orders, though, there's really no excuse not to use them all the time.
Lennar Corp (LEN), which I sold yesterday, closed up another 33 cents today at $65.52. As consolation, the homebuilder stock I kept, Toll Brothers (TOL), finally is showing some motion, heading up nearly a buck and a half to almost $104. I'm not sure what happened to the TOL split; maybe the extra shares are to be distributed after closing, because they sure weren't distributed before opening! This is the first split I've held stock through, so I'm not sure how it actually plays out. Guess I'll see.
I bought 14 shares of iShares Emerging Markets ETF (EEM) at $72.30, 55 shares of Paxar (PXR) at $17.97, and 6 shares of Sears Holdings (SHLD) at $152.25. The SHLD dipped slightly before closing, but the EEM rose 50 cents a share (enough to pay for my commission in buying it) and the PXR rose eight cents a share. Of course half a day's trading activity on a day the Dow rose nearly 150 points is not any real sign of anything. Still, it's a nice feeling to have two of my three new acquisitions move up right after I bought them.
Closed at $6710.69. That's about $100 up on the day just on the three stocks (BBB, NWY, and TOL) I owned at the start of the day, less $21 for trade commissions. Basically, I've made 10% on my $7000 investment, and I haven't even contributed the seventh thousand yet. I'm looking at a way to get that extra chunk contributed later this month; the longer I can have it in the account this year, the more I can earn with it...
I sold the Lennar Corp. (LEN) today at $64.56 for a 10% gain (inclusive of commissions) since I bought it on May 26. It proceeded to close at $65.19, up $1.49 for the day, which shows my timing was a bit off. However, I now have only one chunk of my IRA in homebuilders, and I did make a nice profit, so I'm happy.
After farting around under $100 for the last couple of days, my shares of Toll Brothers (TOL) surged $3.29 to close at $102.48. This stock splits tomorrow.
Neenah Paper (NP), which I sold last week, closed down 19 cents at $31.09 today, a bit below where I sold it. Yeah, I'm still watching that one; I'm curious as to whether I called it right.
My New York & Co. (NWY) and Blackboard (BBBB) were down slightly, the NWY about three quarters of a percent and the BBBB about a quarter of a percent. But because of TOL's resurgence, my total portfolio closed at $6637.23. (Yeah, that's up more than a grand from yesterday -- I made another contribution. The actual stock-related appreciation on the day is something like $30.)
So with the proceeds of my Lennar and NP sales, as well as the new money that hit the account today, I have three chunks available to invest. One of them will be going into the iShares Emerging Markets ETF (EEM) fairly long-term. Another chunk is likely to go into Paxar (PXR), which is a Hidden Gems pick I mentioned last week. The last chunk I'm thinking of putting into a tech ETF or perhaps Sears Holdings (SHLD) for a few months until I need the money for another Hidden Gem. A small amount (i.e. the proceeds from my NP and LEN sales) will remain in cash, hopefully to be joined from other cash from future sales to become a new chunk.
Stock prices move up and down seemingly at random. In fact, it's not random at all, but reflects buying and selling activity during the trading day. It's the buying and selling activity that's seemingly random. I realize this seems like a useless distinction, kind of like when Douglas Adams's holistic detective Dirk Gently, by means of automatic writing, wrote down the answer to a mystery in a language he didn't know, thereby transforming an intractable detective problem into a merely linguistic one -- albeit an intractable one. But bear with me.
There is no "market price" for stock -- only the last price someone paid. When someone sells a stock, they obviously want to sell it to the person who has the highest standing offer to buy it. If they want to sell more shares than that person is willing to buy, then they have to move on to the next lowest bidder to sell the rest of it, driving the price down. If you really want to unload a lot of a stock, you have to keep offering it at lower and lower prices until it's gone. Similarly, when buying, bidders naturally start with the shares of the lowest-priced seller and move up, driving the price higher. It's nearly pure supply and demand.
Many real-world events can cause buying and selling activity. Recently, the Fed raised interest rates, and a lot of stocks showed a downward blip. This happens when people want out of the stock now and that's more important to them than the price they're getting (possibly they figure it's had a nice run-up already, so the exact price doesn't matter). If an analyst goes bullish on a stock (increases the stock's rating or projected earnings or target price), that can cause a rush of buying activity, and the reverse can happen if an analyst goes bearish. When a company is on the front page of the New York Times for corporate malfeasance, everyone wants to sell, nobody wants to buy at anywhere near the recent price, and the price plummets.
When a rising stock reaches an analyst's projection (or even a nice round number, like $100 a share), people who bought in at a lower price often start thinking it's gone as high as it'll go and begin selling ("profit-taking"), driving the price down. Some people will intend to sell at a given price but miss the boat the first time, or else be spooked by its precipitous decline, so they wait until it goes back up to sell off. And sometimes there are additional waves. Similarly, when a stock dips to a point that a lot of people consider it a good value (e.g. a Motley Fool newsletter suggest a given stock is a buy at $20), buying starts, driving the price up. If it dips back down to the recommended price after the initial buying frenzy subsides, some people will add to their position and/or try to get in on what they missed the first time, causing another spike, and so on.
If a stock stays near the same price for a while, it can develop a sort of cycle of buying and selling in which some investors get out of the stock because it's not making any big moves, driving it down a little, and other investors who have been waiting to get in at a good price snap up the shares, driving it right back up. This kind of activity is, to my understanding, what causes the behavior of stock prices that technical analysts refer to as "resistance" (the seeming unwillingness of a stock to go above a certain price) and "support" (the seeming unwillingness of a stock to go below a certain price).
Technical analysts believe they can determine support and resistance levels, as well as the stock's general up or down trend, from the stock chart itself, knowing nothing else about the company. In short, they believe stock prices are almost entirely psychology and that human nature is predictable enough in aggregate to predict using chart analysis. I'm not entirely sold on the concept myself, as obviously there are lots of stock moves caused by real events, but I sometimes check a technical analysis to see if a better entry or exit point is predicted to exist within a few days for a stock I'm considering buying or selling. Results thus far have been mixed, perhaps with a very slight positive bias, which is pretty much what I expected.
Around 2000 my main financial priority was getting myself out of the $52,000 of credit card debt I'd accumulated during my years of freelancing. In 2003, my main financial priority was paying off my car, which I accomplished in March of 2004. In 2004, my main financial priority was... well, I kind of lost the thread of having a main financial priority. Basically, I felt like I'd worked hard to get myself out of debt and deserved to indulge myself a bit, so I moved to a nicer apartment closer to work, bought a new Macintosh system, and a few other things. In 2005, this trend has continued with my purchase of a Canon EOS 20D digital camera and associated paraphenalia, and a few other things here and there -- that have added up to several thousand dollars. Ulp.
On the other hand, I will max out both my 401(k) and Roth IRA contributions this year, and I have gone through my finances and cut out a lot of unnecessary expenses. For example, I realized I don't watch that much TV and dropped the movie channels on my DirecTV subscription in favor of NetFlix's 1-at-a-time plan, for a savings of $30 a month. I'm on the verge of canceling my T-Mobile service as well and switching to a prepaid provider. Also, I've not paid a penny of interest since I paid off my car and, in fact, I now have a bank paying me money to use their money, which is a good reflection on my recovering FICO score.
I have a few other things I want to buy this year: a couple additional lenses for the 20D, a smaller printer, and a portable computer, either a beefy new PDA or a small laptop -- what I really want is a scaled-down Tablet PC, something like a Sony Vaio U750 or a Dialog FlyBook V33i. But I'd take a Dell Axim X50v, preferably with a memory upgrade. That would really be the smart thing to do, as it'd cost a lot less than the Vaio or the Flybook. Those are the last major things I have gadget lust for. Then it's just books and CDs.
Still, if I want to follow Peter Lynch's advice and own my home, I should stop spending so much money on technology that will be obsolete in a few years and focus on saving up a down payment. Yes, you can get a mortgage with no money down these days, but in the time it takes for me to save up the down, the last few remaining negative remarks will fall off my credit report, thereby getting me a better rate on my loan (even if rates go up, I figure I'll break even). Also, since I'll start with 20% equity, I won't need PMI for the first few years of the loan, which should help offset any increase in real estate prices. And of course having fifty grand in savings (my goal) would be a very nice safety net if I decide not to buy a house.
I haven't mentioned buying a new car. The one I have isn't fancy (it's a Hyundai Elantra) but it is paid for, and it will be under warranty through 2012 or until the odometer rolls over to 100,000 miles, whichever comes first. The hybrid Altima that Nissan has coming out late next year sounds appealing and suitably "green," but I don't need a new car, especially not one that costs thirty grand. I'll revisit that decision after the hybrid Altima has been out for a year or so, but my hope is to put off buying a new car until after I buy a house.
Today, Neenah Paper (NP) rose above where I sold it. This is of course a common pitfall of stock trading: watching what the stocks you sold did after you sold them. In reality, there is nothing to be gained from second-guessing, unless you notice you're missing a lot of such calls, in which case you might need to adjust your strategy. I made a small amount of money on the trade (one that would in fact allow me to hit my annual goal if I could do it every month) and I still don't have a good feeling about the paper business overall or NP's prospects in particular, so this short-term gain doesn't really change my mind about putting the money elsewhere. I got into it because it was slightly depressed from the Motley Fool recommendation price, and I had a hunch it would rebound soon. It did. In short, it was a trade, and while I didn't make as much as I could have if I'd timed the sale better, I did make a little. I think I'll be doing less trading in the future, though, and here's why:
I finished reading Peter Lynch's One Up on Wall Street over the holiday and found it made a good deal of sense to me. The Motley Fool's "Hidden Gems" newsletter, to which I subscribe, is heavily Lynchian in its philosophy: find smallish, boring businesses that are well-run and have great growth potential but which are largely being ignored by analysts, get in before the Street discovers them, and hold them while they increase in value by two, five, ten, or fifty times. The theory is that you only need one really big winner to make up for a lot of mediocre performers. It seems to work.
Unfortunately my current "chunk" of $1000 and contributions to date of $5000 (soon to be $6000) doesn't really allow me to hold stocks very long if I want to add a new stock to my portfolio every month. That would require selling stocks I'd held for only six months. My plan, therefore, is to buy no more than one new Hidden Gem every two months and try to hold each for a year. In a sense I am "wasting" three quarters of my HG subscription by not buying all their picks, but I probably wouldn't buy all their picks anyway, as some of them just don't appeal for one reason or another. In the meantime I can put together a mock portfolio and see how the stocks that I might have bought if I'd had the money would have done, which will be educational.
Alternatively, I could open a regular brokerage account and buy some of their other stocks when I have the money to do so. The tax structure would encourage me to buy and hold. However, I want to get a few grand into savings before doing that.
In August or September I'll be able to contibute another $1000 to the Roth, which will max me out for the year. I'll use this either for a sector ETF (I'm considering the iShares Emerging Markets ETF, symbol EEM, to get some foreign exposure) or to do a little shorter-term speculating. As Jim Cramer points out, speculation is useful to keep you excited about investing, but it should never make up much of your portfolio. (He also says not to speculate in your retirement fund, but my 401(k) already has my retirement covered, so the IRA is my play money.)
My goal is to save up another $4000 by the end of this year and be able to make my 2006 contributions at the beginning of next year, for a total of $11,000 in contributions. With any luck, I'll also have earned $1000 or more in 2005; as I cash out old stocks to buy new ones, I'll keep investing in chunks of $1000 and set the excess aside toward adding a new chunk. This will give me twelve chunks, allowing me to buy a Hidden Gems pick every month -- or to hold bi-monthly picks for two years, which might be more reasonable.
My portfolio closed at $5601.49 today, a new high. I'm well on my way to earning that new chunk.
There's still the question of what to do with the Lennar (LEN) and Toll Brothers (TOL). Obviously, those are sheer speculative plays in the homebuilder sector and right now I have two chunks tied up there -- way too much if I am to be a truly Lynchian investor. Lennar is up over $64 today and I should probably think about selling it in the very near future for a quick 9% gain. TOL went over $107 once since I've owned it, and I think it can get there again if I'm patient enough (it closed at only $100.70 today). So for now that'll be my speculative play -- as I mentioned last week, Toll reports earnings in late August, but I'd consider selling if it goes above $107 before then; that'd be a 16% gain, which ain't bad for speculation. At that point I'll probably put it into EEM and refrain from further speculating until I run into something compelling.
Lynch also points out that a home is one of your better investments. I really am not crazy about the idea of owning a home, but in 2006 I will begin to save up a down payment. With all the talk of a bubble, I'm kind of hoping to see real estate prices level off a bit or even decline slightly before I buy. In any case, by the time I have some money to put down, my credit score will be greatly improved.
My Lennar Corp (LEN) is down a wee bit today; not unexpected after yesterday's Fed rate hike. Toll Bros (TOL) is down over a buck a share, though. Blackboard (BBBB) is also down very slightly, but New York & Co. (NWY) is up 31 cents a share, and I own 53 of NWY and only 11 of TOL, so I came out a couple bucks ahead on the day. $5560.58 is the final tally at the bell.
As if to justify the sale of my shares yesterday, Neenah Paper (NP) went down another few cents. (It doesn't really justify anything, of course. It could rocket up next week or next month.)
When my portfolio closes around the same value a couple days in a row, I tend to start thinking of this price as the new "set point." For example, right now, losses from $5550 will feel "painful." I have to watch out for this; it's entirely in my head. 10.5% in a little over a month of paying attention to my investments? I'm doing extremely well. So well, in fact, the phrase "beginner's luck" comes to mind. I could lose most of my gains next month and still be beating the market. I have to stop thinking in set-point terms -- I can't be panicking every time I see a little dip.
I'm getting better at this, though. A couple weeks ago my portfolio closed at nearly $5500 on a Friday. By closing on the following Monday, it had dropped to a little over $5300. This is the sort of thing that would have stopped my heart when I started out, but I sat tight, and that money came back -- and then some. Thankfully it came back relatively quickly. I'd rather not test my endurance just yet.
I'm not sure you can really learn to cope with volatility except by putting some money into the market and letting it ride. Good companies come back, usually sooner rather than later, and if a good company is down for an extended time, that's a signal to buy more and "average down," not to panic and sell it all. You can read that advice in many investing books. Doing it, however, is harder than I thought it would be. I have to fight my own instincts. I consider myself more rational than most people; I'm somewhat taken aback by my emotional reactions to market events.
I didn't sell the LEN today; I'd hate to sell a basically strong stock on what I firmly believe is a temporary setback. I'll wait until it goes up some more. Letting your winners run is a philosophy that makes sense to me. I'd like to earn at least 10% on it after commission, which would mean seeing it move solidly above $64 a share, but at the same time I don't want to be overweight in homebuilder stocks too much longer, and I think TOL is better, though I don't want to hold that forever either. I'll give LEN another couple weeks.
It may seem odd to hold on to a stock in the hope of earning a measly 10 or 20 bucks, which is what a point or two means when you've invested around $1000, but eventually, I hope to be dealing in much larger chunks, and an extra percentage point will make a bigger difference. Best to develop the discipline now.
Fun tidbit for the day: I have 11 shares of TOL, so when the share price is $101.01 I end up with holdings of $1111.11 in the stock. $102.03 would result in $1122.33. This kind of thing makes me happy. I am such a nerd.