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.