Taking profit on Power Corporation and topping up on Apple

Power Corp. (POW.TO) is up 8% since I topped up in July at $22.82.  Coincidentally, Apple is down around 9.6% since I took profits at $650.01 in August.  This offers a great opportunity to take profits on Power Corp. and use the funds to top up on Apple.  Normally I would prefer to wait until these stocks has risen/fallen by 10 %, rather than 8 and 9.6%, but this convergence of advance and decline is too useful to ignore and might not last for long.

  • SELL POW.TO @ $24.64
  • BUY AAPL @ $587.49

The main risk to this trade is that Apple will fall further and that I’m buying too high.  I discussed the technical issues that drive this risk yesterday.  I don’t normally do a postmortem when I trade around (I normally do a “one month later” postmortem on core position trades) but this trade is interesting and is worth validating in a week or so.

POSTMORTEM

Wow!  What a week.  Apple closed today, Friday 9th, at $547, down $40 (or 6.8%) since I topped up last week.  There are a few factors:

  • Apple went ex-dividend on 7th November, which should have reduced it’s value by ~0.5%
  • There are doubts about Apple’s product roadmap and the success of the recently introduced iPad mini
  • The re-election of Barack Obama has lead investors to become concerned about a possible increase in capital gains taxes caused by the US’ Fiscal Cliff*, which has caused investors to take their capitals gains now, while taxes are lower

Power Corp closed today at $24.65; basically the same price at which I sold it.  Overall, this was a bad call.  I should have waited for Apple to go lower before buying.  I did identify this as the main risk of the trade, but I failed to be patient.

*The Fiscal Cliff issue relates to the solution to the debt crisis of 2011.  The solution in 2011 was to kick the can down the road until after the 2012 presidential election, and now it raises its ugly head again.

UPDATE

Another wild week!  On Friday 16th, Apple saw an intra-day low of $505.75 (down 14%) before closing at $527.68.  Writing this morning, on Monday 19th, the stock is up to $559 (up 11% since Friday’s low, but still down 5% from this trade).  Buying Apple at $587.49 was premature and expensive, but it might still prove to be a profitable trade.

Power Corp is at $24.30, down 1.4% since I sold it on 2nd November.  So that part of the trade is looking OK.

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7 comments

  1. The Dividend Trader · November 4, 2012

    interesting I just bought POW at 23.50 a share so up almost a dollar, I was also interested in MFC and SLF both are struggling so I figured the price would drop, but both are at 52 week highs. Since I’m doing David Stanelys BTSX I’m stuck as the ex dividend date is coming up, (was hoping to pick it up cheaper) so the question is do I pick it up anyways and collect a full years worth of dividends or forgoing some dividends and hoping the price drops.

    On the other hand (baring a dividend cut that is) if the price does drop than the yield will increase and it will stay in the portfolio.

    Rob

    PS at this point decided not to go with any US stocks.

  2. Roth Niven · November 4, 2012

    I tried BTSX for a while but decided that I didn’t like holding a stock regardless of my personal opinion of it (e.g. TransAlta). I now do my own fundamental analysis of dividend stocks and pick the ones I like. I recently reviewed the banks and insurers; Manulife looks good. Here: http://dataclutter.com/2012/10/30/analysis-of-the-financial-sector-the-banking-and-insurance-industries/

    • No I agree, it’s something I’m thinking about, the problem is knowing when a stock is at a good price, for example Penngrowth Energy, I figured it had bottom out, and buyers were coming back but it’s down about 75 cents or about 11% from when I bought it. Now that I’ve finished buying my stocks I’m hoping to post it to my blog (been a while since an update) and next project is to start tracking my rate of return.

      rob

  3. Roth Niven · November 5, 2012

    TransAlta was a heartbreaker. I sold at $14.13, which is 12% below today’s price. But I sold to avoid the risk that TA would crater, and I think that risk still exists. Holding TA then (or now) is too speculative for me.

  4. Roth Niven · November 5, 2012

    Just revisited my analysis of utilities sector. Nothing worth buying, for me. http://dataclutter.com/2012/11/05/review-of-utilities-sector/

  5. I’ll eventually update on my blog on this but I decided to follow the BTSX the reason is, besides his track record, it removes human emotion from the equation. No matter how hard we try fear and greed take over. I nearly dropped 20,000 dollars on Pengrowth, got seduced by the high yield, but thanks to an email from a fellow blogger (Dividend Ninja) I didn’t. So putting the money into finishing off my 10 stock portfolio.

    Rob

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