A little thank you to Warren Buffet

[Rain Man]

On December 21st I was looking for a stock to buy with some extra cash, and I liked Heinz, the ketchup company. It's pretty stable and pays a nice dividend, and I've really liked dividend stocks the past few years. So I bought $5,000 worth. It's gone up a couple of percent over the last couple of months, and I've been good with that since that's a very good annualized return so far.

Today it was announced the Berkshire Hathaway is buying Heinz. The stock is up 20% today. Blammo. I sold out my initial $5,000 worth, left the profit in, and I now have $1,200 of free Heinz ketchup stock for two months of investment.

God, I love America.

[teedubya]

I bought $5000 of the stock MJNA after the elections... when Colorado made marijuana legal. Bought it at $0.128 per share. Today, it's around $0.45 a share. :-D

[Amnorix]

Originally Posted by Rain Man

So now I have a strategy, and I stick to it religiously. I buy stock in lumps of $4,000 or $5,000. When I get to the point where I've made 20%, I sell out my original share and leave the profit in. That way, if the stock goes down I haven't lost any of my principal, and if the stock goes all Dell I'll still get the upside, albeit in a smaller dose. But I won't completely miss the boat.

I've been using this system for about 6 or 7 years now. The result is that I'm slowly building my own mutual fund of dividend-paying stocks with growth potential that I've hand-picked. It disseminates my risk but also gives me enough concentration that I have the potential to beat the market significantly.

So when do you sell the rest? Whatever is left after you sell and make your money back and have the "free shares" sitting around?

[Rain Man]

Originally Posted by Amnorix

So when do you sell the rest? Whatever is left after you sell and make your money back and have the "free shares" sitting around?

So far, I don't. I sow the seeds of financial growth like Johnny Capitalseed, and let them flourish.

It's been hard to evaluate my system so far because of the turmoil in the markets. I've had a few stocks that have plummeted and a few that continued to grow quite well. I'm not sure that I'm really getting a different performance than an index fund, but it's much more fun.

[Rain Man]

In total, I've executed this system with 38 stocks. My outcomes are:

Fully executed (meaning that I bought, made 20%, and pulled out the original, leaving only the profits):

7 stocks - Less than the original purchase price (-70%, -10%, -5%, -20%, -1%, -35%, -10%)

2 stocks - Above the original purchase price, but by less than 20%

12 stocks - Continued growing above and beyond the 20% (30%, 50%, 25%, 200%, 470%, 25%, 100%, 110%, 125%, 40%, 30%, 70%)

I think my "sowing seeds strategy has worked here. While I've had a few that tanked, I've also been riding some really good winners.


Not fully executed (meaning I bought the stock, but it hasn't appreciated by 20% yet)

8 stocks - Less than the purchase price
4 stocks - Above the purchase price, but by less than 20%

The eight dogs are hurting me. These are stocks that I bought and immediately lost money on. I've been waiting on them to recover, but several of them were stocks I bought before the crash and they just didn't recover over the past couple of years.

In a few instances, I've doubled down and bought more stock if I see an opportunity. This is where watching my list has paid off:


1 stock - Less than the purchase price
0 stocks - Above the purchase price, but by less than 20%
4 stocks - Above the purchase price by more than 20% (330%, 350%, 50%, 30%)

[ptlyon]

Do what you want Rain Man, but if it were me, I'd parlay that $1,200 into a nice Carnival cruise for you & the Mrs..

[DaKCMan AP]

Originally Posted by Rain Man

In total, I've executed this system with 38 stocks. My outcomes are:

Fully executed (meaning that I bought, made 20%, and pulled out the original, leaving only the profits):

7 stocks - Less than the original purchase price (-70%, -10%, -5%, -20%, -1%, -35%, -10%)


2 stocks - Above the original purchase price, but by less than 20%

12 stocks - Continued growing above and beyond the 20% (30%, 50%, 25%, 200%, 470%, 25%, 100%, 110%, 125%, 40%, 30%, 70%)

I think my "sowing seeds strategy has worked here. While I've had a few that tanked, I've also been riding some really good winners.

Are the returns listed the return on the 20% non-principal investment (i.e. what you left in there after pulling out your principal)? Do they include the original 20% gain or are they the performance after the initial 20% return?

Originally Posted by Rain Man

In a few instances, I've doubled down and bought more stock if I see an opportunity. This is where watching my list has paid off:


1 stock - Less than the purchase price
0 stocks - Above the purchase price, but by less than 20%
4 stocks - Above the purchase price by more than 20% (330%, 350%, 50%, 30%)

At what point did you double-down?

[Rain Man]

Originally Posted by DaKCMan AP

Are the returns listed the return on the 20% non-principal investment (i.e. what you left in there after pulling out your principal)? Do they include the original 20% gain or are they the performance after the initial 20% return?

The figures I show would include the original 20% gain. So as an example...

I buy 50 shares of a stock at $100 for $5,000.
It goes up 20% to $120 and $6,000.
I sell 42 shares at $120 to get my $5,040 back (roughly), and still have 8 shares that are worth $960.
I then let those 8 shares ride. If I report a 30% gain, it's 30% over what I originally paid, or $130. So at a 30% gain, those 8 shares are worth $1,040.

And of course there are some sale fees and stuff.

Originally Posted by DaKCMan AP

At what point did you double-down?

I've doubled down on a few stocks. Because I've held most of them for a while, I get a feel for when they seem to be priced low. I did great on the stock for a financial services firm after the crash because I only had my profit in it, so it didn't destroy me when that $1,000 lost 90% of it's value. I looked at the company and it was still doing well, so I bought it three more times on the rebound back up.

I've also bought Carnival when it tanked after the Costa ship problem. I already had the stock, so it seemed like it got hit too hard. I've done it with a couple of other stocks that way too, when they got bad news.

The only double-down I've whiffed on was General Electric. I initially bought it and it tanked 20% and I doubled down, but I didn't know the stock well enough. It then dropped another 20% and has been vexing me ever since.

I should note too that a key part of my strategy is to get dividend-paying stocks, too. If I do that, I see three outcomes:

1. The stock goes up 20% and I implement my system.
2. The stock is stagnant, in which case I still get a 2 or 3 percent return.
3. The stock tanks, in which case I'm hosed anyway, but the dividend at least helps me slowly recover my losses.

[Strongside]

Pass go. Collect $200.

[Rain Man]

The one downside of my system is that it's very, very confusing on first glance. When I open my account, I have several stocks where I've made money off of them, but it looks like I lost money. If I cashed out my initial investment and just left the profit in, and then the stock tanks, it shows the money as a loss, when in reality it's just less profit.

I don't have that problem if it keeps going up, so that's what I shoot for.

[suds79]

Originally Posted by rageeumr

A or B share? If A, are you looking for a new drinking buddy?

Hell I'd buy you a drink gladly if it was A.... It's B.

[Nickel D]

Is it "ketchup" or "catsup"? And how could there be such a huge disparity in the spelling of this tomato-based condiment?

[Amnorix]

Originally Posted by Rain Man

The only double-down I've whiffed on was General Electric. I initially bought it and it tanked 20% and I doubled down, but I didn't know the stock well enough. It then dropped another 20% and has been vexing me ever since.

You're not the only one on GE, and you're talking to a guy who has bought into MAYBE 12 or so different individual stocks in his life. I'm starting to do more now, though, just because. Slow and steady wins the race, but it is damn boring. I'm finally at a point where I"m comfortable making fairly small plays on my own, so sure.

But yes, GE was one of my early ones, and it has been a problem for a while. It's finally gotten to the plus side of the ledger, however, thank goodness.

I'm terrible at selling, so I'm probably going to implement your system, or a variant of it. I watched Alcoa go waaay up and then come all the way back down to negative. I think I was up 100% at one point, but now I'm at +3%. Your system seems like the kind of thing I need to enforce some kind of discipline on myself. Otherwise, I tend to buy and hold forever.

But I'm never going to hold onto shares that are up 20% after a merger/acquisition is announced.

[Rain Man]

Originally Posted by Amnorix

You're not the only one on GE, and you're talking to a guy who has bought into MAYBE 12 or so different individual stocks in his life. I'm starting to do more now, though, just because. Slow and steady wins the race, but it is damn boring. I'm finally at a point where I"m comfortable making fairly small plays on my own, so sure.

But yes, GE was one of my early ones, and it has been a problem for a while. It's finally gotten to the plus side of the ledger, however, thank goodness.

I'm terrible at selling, so I'm probably going to implement your system, or a variant of it. I watched Alcoa go waaay up and then come all the way back down to negative. I think I was up 100% at one point, but now I'm at +3%. Your system seems like the kind of thing I need to enforce some kind of discipline on myself. Otherwise, I tend to buy and hold forever.

But I'm never going to hold onto shares that are up 20% after a merger/acquisition is announced.

Your Alcoa example is another reason why I implemented this system. I too have had a few stocks that have had a really good run, and then it frustrated me to see it drop back down. I set the 20 percent threshold because I figure it's low enough that a stock could have a good run and go up that far and then drop back down within a short period of time. If I get that return and then eliminate the risk to my initial capital, then I'm willing to take the risk that it'll cool down if my only downside is losing profit.

The other side of my equation was that, in an Alcoa type of situation, I would buy back the original shares if the price dropped back down to the original purchase price. I haven't had the discipline to do that yet because I've always found another shiny stock beforehand, but in theory it seems like it should work. Ride the stock up, sell the original investment amount high, and then just invest it right back if it goes back down. If it keeps going up you still get a little piece of the action with the profit that you've left in it.

The model only seems to break down when you buy GE and it gets on a train south and never comes back.

[Amnorix]

Originally Posted by Rain Man

Your Alcoa example is another reason why I implemented this system. I too have had a few stocks that have had a really good run, and then it frustrated me to see it drop back down. I set the 20 percent threshold because I figure it's low enough that a stock could have a good run and go up that far and then drop back down within a short period of time. If I get that return and then eliminate the risk to my initial capital, then I'm willing to take the risk that it'll cool down if my only downside is losing profit.

Well, I've implemented your plan already. I had Pfizer bought at $17 and it's at $27, or up 55% or so, and I'd arbitrarily decided to sell at $30/share, which it's been slowing climbing toward for awhile. Instead, I have now sold 2/3rds of my shares, which is enough to get my initial investment back, and am holding onto the 1/3rd as a profit play.

Your take the money off teh table approach makes sense. Of course, lately it hasn't been too tough to get a 20% gain on anything if you were buying anytime after the '08 crash...

In a bear market, finding somethimg to go up 20% is a helluva lot harder.

[Rain Man]

Originally Posted by Amnorix

Well, I've implemented your plan already. I had Pfizer bought at $17 and it's at $27, or up 55% or so, and I'd arbitrarily decided to sell at $30/share, which it's been slowing climbing toward for awhile. Instead, I have now sold 2/3rds of my shares, which is enough to get my initial investment back, and am holding onto the 1/3rd as a profit play.

Your take the money off teh table approach makes sense. Of course, lately it hasn't been too tough to get a 20% gain on anything if you were buying anytime after the '08 crash...

In a bear market, finding somethimg to go up 20% is a helluva lot harder.

Yeah, that's what has made evaluation hard. Looking back, I started this system in 2006 and ramped it up in earnest in 2007 and 2008. I think I might've moved one stock in 2009 and 2010. Brutal, just brutal.

Let me know how it works for you.