Thursday, June 12, 2014

Learning from Intel (INTC)

I'm thinking about selling my INTC shares.  I have several reasons:
  • I've been holding since purchase in August/September 2012, and am up only 11% or so, but I'm finally ahead.
  • They failed to increase their dividend this year, and the yield has dropped to just above 3%
  • Intel's sales and earnings continue to decline, and they are highly tied to the world of PCs
  • The Chump IRA is pretty heavy in tech stocks....INTC, IBM, AAPL, CSCO
  • And lastly, I own shares in my taxable account as well, and combined, I have a very large position in a company I like, but don't love.
So, all that said, I'm still general, I just dislike selling stocks, an emotional/behavioral issue clearly.  Along those lines, here's a look at my behavior when I was buying INTC back in 2012:

Its pretty funny to see in hindsight.  After looking at the FASTGraph, I initiated a position in August of 2012....$5,000.  

Back when I started the position, the 2012 EPS above were not yet known, the stock was at an historically low PE of around 10 vs. 17.2, and yield was north of 4%, and stock had just dipped down from a 52 week high of over $28/ share.  In short, a great value investment.  

Four short days after my initial investment, I convinced myself that I was a genius, and the stock was headed much higher, so I bought another $5,000 (These show up on my brokerage statement above as $2,454 and $2,789 because one year later, I sold half of the position).  Five days later, still convinced, I add $2,200 on a slight dip.  Then ONE day later, and add another $3,400 on another slight dip.  What the heck was I thinking heh? One day after that, price unchanged, I add another $1,300.  Two more adds totaling $3,800 happened just a couple of weeks later as the stock continued to the end of all that, I had invested around $19k at an average cost of around $25 per share.

Sitting on a larger than "full" position at that point,  I watched the stock continue its decline to a bottom of around $19 six months later.  I was unwilling to add further shares, and feeling pretty bad about my investment.  I then sold off about $5,000 worth of stock when the price rebounded in July of 2013 from $19 to $23.  I wanted to right size my position, and reinvest elsewhere.  I lost about $500 on this trade in 2013.  Along the way, I collected over $1,500 in dividends while the price declined, reinvested them, and enjoyed a gain on my dividends of about $275.  So, with dividend reinvestment, $20.7k went in, around $22.1k is coming out, for a gain of about 6.7% over almost two years.  Pretty poor performance.

My learning is in the timing of my purchases and sales.  I really lacked discipline on both the buying and selling of the shares.  I need to establish some rules around adding and selling a the top of my head, these might help:
  • When starting a position, is the stock undervalued (>10% vs. six year PE), or fairly valued?
  • If undervalued, start with a 2/3 position right out of the gate.
  • If fairly valued, start with a 1/3 position.
  • Wait 30 days, or for a 10% decline in the stock, then re-evaluate.
  • If a 10% drop occurs (vs. purchase price), add another 1/3.
  • If after 30 days, the stock is same or higher, wait another 30 days
  • After 60 days, if the stock is still within 5% of purchase price, establish full position
  • If the stock has run up more than 5%, do nothing more.
  • In cases where the stock drops 20% from original purchase, add another 1/3 position, for a greater than full 4/3 position

Applying these rules to INTC, I would have bought $10k initially at $26.64, then another $5k thirty days later at around $23.32.  I would have than added another $5k when the stock hit $21.00, for a total position of $20k invested at an average price of $24.15 (vs. $25.12).

Its difficult to calculate exactly, but my return would have increased to approximately 9.2% from the actual 6.7% had I followed the rules above.  I'll need to think about these rules more, and model what happens if the stock just goes up from purchase, and I never get a full position.

But its really interesting for me to look at this and remember what was going through my mind...part of the reason I started this blog.  Unfortunately, these purchase were just before I started the Chump blog.

I haven't read too much from others on this, what are your buy rules for establishing a full position?


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