Lowering risk on Canadian Banks

Bank of Montreal (BMO.TO) has had a very good run lately.  I purchased the stock on 4th September 2012 at $57; it closed today at $64.53 (up 13.2% in less than five months).  There have been rumblings about the health of Canadian banks and today Moddy’s donwgraded six Canadian banks.  It’s time to take some profits so I asked my Financial Adviser to sell 25% of my position.

  • Sell BMO.TO @ $64.50

There was a problem though.  My Financial Adviser sold 100% of my position!  This has happened before.

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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.