I am not usually writing about stock trading, but with all the ups and downs we lived so far in 2007, I thought I would add my point of view on this topic. I have been trading since 2004 and made a reasonable amount of profit. While I am not trading with a large sum of money, I should end up my third of experience with a positive overall positive return.
However, my recent year has not been my best one as I am negative 6% as of this morning. The main reason being this is that I had to sell all my stocks back in October 2006 in order to purchase my property. Since then, I only put back money in the market last April, at the marketâ€™s peak. There were not much room for profit and the market dropped since then.
I recently wrote in my Financial Ramblings III that I made some change in my portfolio. In fact, after the marketsâ€™ drop, I looked at some stocks I was keeping an eye on. I noticed that two stocks dropped more than the average.
My first pick was Harvest Energy Trust (HTE.UN). It is an oil and natural gas income trust offering a very decent yield (about 17% at the price I bought it). Harvest dropped from $34,40 on July 10th to $26,67 on August 20th. I bought it during that day at $26,89. This represents a slide of almost 22% in a span of a month and a half. The company just released its Q2 results with an increase in most categories. What does interest me the most is the distribution ratio that went down to 63%. They are gradually preparing the company for the â€œafter tax freeâ€ period.
My second pick was pure speculation. I bought a mining stock (Chariot Resources; CHD). This company is implicated in a copper mine in
Regardless if I was thinking these were good deals or not, I did not have any liquidity to inject in the market. Then, I looked at my current portfolio and came up with the following trading technique: One of my stocks in my portfolio was only down by 5% from the time I bought it (Westjet: wja). I then decided to sell my loser (Westjet) and buy two bigger looser (Harvest and Chariot).
I estimated that the chance of both stocks going up to compensate the loss I incurred selling Westjet is pretty good. In fact, just with Harvestâ€™s distribution, I should cover for my 3 transaction fees (1 sell and 2 buys) along with what I lost by selling Westjet sooner than expected. Iâ€™ll keep you posted on the result of my decision at the end of this year. Hopefully, Iâ€™ll be in a better position!
Have you ever used that method or other trading technique after a market correction?
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