Buying Stocks

[Declan]

This is a thread to discuss the latest stocks that I have bought.
Yesterday I purchased the third batch of Kinross Gold. More on this later.
Symbol KGC.

 

[Declan]

I am starting a tiny experiment to show and discuss buying stocks.
Years ago I owned shares in Echo Bay Mines and it was sold out to Kinross Mining eventually, so therefore I owned shares in KGC. The broker who is the custodian is up in Toronto and the only dealing I have is that twice yearly I receive dividend checks. It just sits there.

So in my trading account here, I have just completed the 4th buy of KGC. It is a small amount of now 1500 shares.

My buy price averaged is $5.64 and it now is trading at $5.57 so I am down 7c a share at the moment.

From here a person has a few different options. What most do isthe exact wrong thing. They buy more as it fallsasthey thing they are getting a bargain. This is called Averaging Down and it usually is fatal, should it go to zero. It has happened to me and maybe everyone that trades.

The other option is to sell and take your loss. Then you hope it does not rise thereafter.

What I will do is nothing but wait. I will not buy more until and if the price goes above $5.64.
If it does rise above it, you are where you want to be, in that case you buy more and Average Up.

But then you must set a sell point if it turns back down. This is psychologically very difficult to do though. Let's see how this works out.

 

[Declan]

So today, this stock fell 11c because gold was slightly lower but moreover because stocks in general fell, because bonds fell which drove up interest rates. All this is very deflationary. So the plan calls for sitting tight.

Elsewhere, silver had a fantastic day and it rose 60c which is a decent jump.

I expect a lot of people to keep buying stocks as the market falls and will continue to lose money.

The oldest saying there is, is, Don't fight the Fed.
And the Fed is draining liquidity and the good times are over.

 

[Declan]

Sotomayor has been so far a great day for KGC and it is up 9% or 50c to $5.98. So I am all of a sudden ahead by 34c per share or $510 on this small position. Maybe I should just take it.

Anyway, the temptation is to buy more and normally that is the right option, but when a stock moves this much, so fast, it usually reverses some. Of course this could be the start of a big move, or it could collapse. That is the question.

 

[Declan]

I decided to buy 4 Call options on SLV at a strike of 23 at a cost of $2.44 each for a total cost of $976 plus some fees for the trade.
It is just a gamble. This is an example of a "derivative" that you hear so much about.
Options are very risky but not nearly as risky as a "futures contract" where you can lose in theory an infinite amount. The same can happen when dealing with "naked options".
But this is not naked. The most I can lose is the 976 dollars.

It is a simple gamble but I will explain it using this real example later.

 

[Declan]

So the 4 options I bought yesterday are now $2.64 each, a profit of 20c which in real terms is 20c multiplied by a 100 so a total profit of $80 on the $964. That is just a stroke of luck and it could lose tice that much tomorrow.

I will explain options.

It is a contract giving a person the option to buy or sell a 100 shares on a company at a set agreed upon price at some agreed date in the future. The advantage being that you need put up less money and the buyer of the option limits his loss to the price of the option. His profit though is not limited.
There are two types of options, Calls and Puts. And you can be a buyer or a seller, so there are 4 courses of action.
1. You can buy a Call contract for a 100 shares of the stock at a price specified and a date in the future that you hope th stock price will get there. If it does not get there IN TIME, the contract expires worthless and you lose 100%. You do this if you think the stock price will rise. Your loss is limited to what you pay for the contract and your profit depends on how much higher the stock goes above the agreed price.

So in my trade of yesterday. SLV was trading about 22 dollars and I wagered that in a year, it will be more than 23. I paid $2.46 each so my break even point if I hold for the year is $25.46.

But I could sell my contract at any time before then, maybe I should sell now???

My maximum loss is the money I have paid but my maximum gain is in theory infinity.

So the seller has a maximum gain, the money that I paid him, but has in theory an infinite loss.

Believe it or not, the seller usually wins.

So let's say I do not sell the contract and hold it till expiration date a year from now .

Let's look at the outcome at different prices of the SLV in one year from now.

$22.99, I lose my 964 dollars.

$25.00. I get back 800, so I lose 164 dollars

$30.00. My contracts are worth 700 dollars each for a gain of $2800

$50.00 My contracts are worth 2700 each for a gain of $6800

Etc Etc Etc.

Sounds easy but it is not.

We shall see. Most options expire worthless.

 

[Declan]

The Lord givith and the Lord taketh away. I am now basically even with these two positions after silver dropped today.
But I am happy because stocks in general, and bitcoin, must collapse before silver skyrockets and that certainly is continuing with both.

Bitcoin now dipping below $38000.

Hopefully that mania is now over.
This likely is because the Federal Reserve soon to introduce its crypto dollar as part of the Reset. Also speculators now are being decimated and will be try to meet margin calls.

 

[Declan]

Both of those trades have now gone against me. The stock KGC trading now at $5.33. Down 31c per share from my buy.
The reason for this issue doesn't matter. All that matters is what I do next.
The options being, 1. Buy more. 2 Do nothing. 3 Sell.

Buying more is out.
Doing nothing is what you do if you expect it to rebound and it is driven down due to factors outside the control of the company.
Selling is what should be done if you think the company is at fault.


I think it isdown because the dollar is up and hence gold is down. Plus forced selling by people getting margin calls as stocks fall.

This is a painful situation.

So I will do nothing.

 

[Declan]

Even though I think KGC is fantastic value, I still should not buy as it could get cheaper, or of course I could be wrong.

I dofeel that it is a good time to buy silver though, Asia is very near its yearly low.
In that belief, I bought a few options.

They are again like before on the silver Fund, SLV.

SLV closed at $20.71, the year low is 19.80. Granted it could break below, but if not then it has more room to the upside.
I purchased 13 Calls , for July with a strike of 24 dollars, I paid 0.65 each or 845 dollars. So SLV must go above 24.65 dollars to make a profit

On a lark, I bought three contracts of CDE for next January at a strike of 10. I intend to use this to maximize the price I will pay for 300 shares of CDE. This will be worthless unless CDE is above $10 a share, more than double what it is now. But should it be say 15, I can buy 300 shares at 10.

That is why it is an option, I can buy if itis profitable.
We shall see.

 

[Declan]

It is not exactly straightforward, the problem with many oil companies is the fact that they have huge debt loads. I did consider some years ago buying the big Brazilian oil company.
PBR.
But it has 324 BILLION DOLLARS in debt.
It will likely go to zero and be bankrupt.

 

[Declan]

I wanted to try the exact same tactic on another stock , seeing that the first one is still under water so I can not buy more.

So I bought just a 100 shares of AG, which is First Majestic Silver Company. I listen to he CEO being interviewed often.

I pais $10.14 a share, let's see how this fares out.

 

[Declan]

So AG is now at $10.37. So far so good.
Now we must discuss what a Stop Loss Order is.
When you buy a stock, you should be aware that you are completely wrong and the price can go down. The important thing is to minimize the loss when this happens by setting a price that you will sell regardless of your emotions. Your emotions are what causes an investor to lose a lot of money.
So I bought at 10.14 so I should decide to sell it and take my loss if it drops to 9.14. I will choose a dollar below but it could be any figure.

If the price drops you hope it does not go that far but if you do, you sell.

If the price rises, then things are far better and you raise your stop loss price. This is called a Trailing Stop Loss Order.

So I should sell now if it drops to $9.37.
Hopefully it continues to rise and if it gets to 11.14, my stop will be 10.14 and I am guaranteed a profit.
If you stick to this gameplan, you max loss is a dollar and your max gain is unlimited. The odds are in your favor.


This gameplan, is exceedingly simple but in reality is very difficult as it goes against human nature to admit you are wrong and take the small manageable loss.

 

[Declan]

Unfortunately I had not shorted facebook and it is down 26% today.

A nasty turn of events for those that recently bought it. And it they used borrowed money, buying on margin, they are in trouble.

 

[Declan]

At the moment, things are looking good with AG. If I was dealing with big numbers I would buy 10% more.
But this is small and used as a test so I bought 30% more or just 30 shares at a price of $10.36.

Now I have 130 shares at an average price of $10.19.
My stop loss was at $9.37 and I will leave it at that. My max loss is now 78c multiplied by 130 equals or 102 dollars.

The dynamic is exactly the same if I started with a 100 shares or a million shares.

 

[Declan]

Sometimes people buy stocks just before an earning report. So to experience this, I bought just 15 shares of Lyft at $41.03. The earnings are released in a few minutes. Let's see how this works out.

 

[Declan]

It was interesting to watch Lyft. The earning were much better than expected but yet the stock dropped initially. It has now recovered and is up over two dollars. So I will watch and add to the position which is tiny but a good example.

I am looking to the inflation report of tomorrow and hope it will boost silver. I just opened a position in Hella Mining, which is the premium silver miner. Again, I will start with just a 100 shares at $5.38.
I will do the same as the others. If it falls I will not buy more until and if it surpasses my buy point.

 

[Declan]

I am kicking myself for not buying a hundred shares of Disney in my main account as it rose 7% in afterhours.

 

[Declan]

I would not advise anyone to sell stocks short because when stocks are insanely high, there is nothing to stop them going even higher.

 

[Declan]

All 4 stocks in this little trial portfolio are up nicely now so I will sit tight. I will raise my stop for AG though to $9.69 or just 40c less than my cost. This is exactly what you want to happen so far. My potential loss is capped at 40c multiplied by 130. If it goes higher, I raise the stop.

 

[Declan]

The news of the day is as I expected, inflation was worse that predicted. This has resulted in the interest rate going above 2% on the 10 year Treasury. If this holds or goes higher, it is very bad news for general stock prices. I am hoping the exceptions would be mining stocks and of course Lyft.