Friday, July 18, 2014

Earnings News for BAX & Establishing a Position

My latest addition to the portfolio, BAX, had a pretty stellar quarterly report today:

Per an earlier blog, I purchased only a 1/3 position in the stock at $73/share.  Today, after the good news, the stock closed the week at $76.52, for a gain so far on the investment of roughly 4.6%.  Darn, I wish I had bought more.  Should I buy more now?  I'm re-copying my dollar cost averaging rules below.  I put these into play when I sold INTC a few weeks back and reviewed my purchase decisions, and how illogical they seemed.  So, as a review, here are my rules for establishing a new position, and my comments after each bullet:

  • When starting a position, is the stock undervalued (>10% vs. six year PE), or fairly valued?
    • Started position in BAX at fair value
  • If undervalued, start with a 2/3 position right out of the gate.
  • If fairly valued, start with a 1/3 position.
    • This is what I did
  • Wait 30 days, or for a 10% decline in the stock, then re-evaluate.
    • 30 days were up on 7/17/14, on that day, the stock was up from purchase
  • If a 10% drop occurs (vs. purchase price), add another 1/3.
    • this has not happened
  • If after 30 days, the stock is same or higher, wait another 30 days
    • the stock is higher, so I'll wait until August 17, and look again
  • After 60 days, if the stock is still within 5% of purchase price, establish full position
    • if BAX continues its present climb, It will be up over 8% by then
  • If the stock has run up more than 5%, do nothing more.
    • Do nothing is looking likely right now, but we'll see in a month
  • In cases where the stock drops 20% from original purchase, add another 1/3 position, for a greater than full 4/3 position

So, I do nothing with BAX for another three weeks.  As I review the rules above, the 10% drop after 30 days seems a bit extreme, I think perhaps I'll revise that to 5%.  

Regarding BAX, I suspect I'll just stick with a small 1/3 position and let it grow.  I'm okay with this.


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