Stock Trading - Entry 28

For those wondering why I axed three non-performing shares recently without selling them, well, a few things. First, that is a small amount of my portfolio and I can afford to wait ten years for the off chance of an increase in the stock price. Second, I am considering them as total losses unless the first point comes to fruition. Third, I have been getting emails like this for almost a year now:

What does that email really mean? It takes the average stock price I paid for all the stocks I own and compares the movement of that combination of stock prices against the overall market during that week. In the end, I get good news nine Saturday mornings out of ten. I won't lie, that makes me feel good about my holdings all weekend long.

Is that an accurate reflection of the performance of all my picks? Nope. As I described in entry 26 with exit strategies, the thing that matters with those is the price you actually sell at. Newsflash #19: A numerical analysis almost always leave something out. But, if you know how and when to use certain numbers, they can be very helpful. (On that note, I am not dispensing financial advice, only my personal thoughts and opinions on my own stock trading journey.)

For example, the actual performance analysis I am gearing up to do next autumn to compare my stocks (including all the shares I sold since the beginning of my stock trading journey), ETFs, bonds, and market-linked GIC against each other will involve an imaginary sell-off of anything remaining and look at what worked well versus what didn't. IMAGINARY. But completely based on reality. That will be my snapshot.

Now apparently I haven't explained myself well enough as to why my recent focus has been on dividend stocks. Ok, I will provide some more detail using two stocks as examples, one I bought, and one on my watch list.

First up is Security Services Corp. (SSC). Having seen reports of things like SSC not having cash on-hand equivalent to the value of all shares at the current price is, I'm sorry, something I consider stupid for two reasons. One, they are not going out of business (read entry 15 where I describe this situation as applied to Imperial Ginseng stocks) - in fact people in the company are buying back a little more because the stock price is good and so is the company. Two, people invest in any company so the company can afford to spend on the things it needs. What about making investors money, you ask?

The stock price isn't about massive movements because the company seems to have found its groove over the past few years. As a result, they don't seem to need massive influxes and expenditures of cash to do what it needs to do at the moment. They have settled down and so long as revenue remains strong relative to everything else, so will their ability to cover costs and pay dividends. Business is good (evidenced by growing revenues), so they don't need to be worried about closing up shop or attracting a buy-out. I like the dividends SSC continues to roll out, which are covered by revenues, allowing the company to run in a financially lean way. In other words, they are a close-to-the-road Lambo, not a Cadillac SUV that is basically a living room on wheels.

How the heck is a Lambo affordable let alone a better pick compared to a Cadillac SUV when it comes to dividend-paying stocks?

The reason I will be holding onto that stock for a while is this: a $2 share price for a dividend of three cents per share every month means the same as dumping money in a bank account paying 18% annually!! Getting that same dividend (36 cents annually) from other companies, from what I have seen in late autumn 2024, involves a much higher share price. Using a 36-cent-per-share-per-year dividend as an example, if a share costs $10, that means dividends of 1.8% annually. If it's $60, that's a dividend of only 0.3% annually. With returns that low, you may as well park your money in a no-interest chequing account because, although you will still lose against inflation, at least you won't have to worry about the stock price dropping! In short, a cheap share price and 18% (or more) in annual dividends works for me.

Now let's look at a stock on my watch list, Enghouse Systems (ENGH). I will mention them here because I received an alert saying the share price might be in a sweet spot (near its price floor, which I show how to calculate in entry 4). In fact, they are sitting on their three-year floor.

Is this a good deal for me? Recent transitions make this one riskier from my point-of-view. The CEO spot is undergoing a turnover - an indicator of unreliability for me. But let's say it pans out. They pay quarterly dividends that have been increasing over recent years and with a share price of a little over $27, that's a dividend of 3.8% annually. As at the time of publishing this article, inflation is around there. Paying $27 per share to hedge your money against inflation...well, based on my sample calculations above, I wouldn't buy this stock for the dividend (which is still better than nothing). I would buy with the intent to sell following a rebound. Now that leaves me with the question of how to gauge the chances of that happening.

Well, from my lowly investor's point-of-view, you have a top dog leaving while retaining influence and a new top dog coming in. I expect some experimentation and growing pains, but I have no idea what that translates into. So, I will wait until I see a stabilizing indicator somewhere in the ether and pounce for a quick sale. Will I do that? Maybe, maybe not. After all, I still don't spend all my spare time analysing stocks and markets, nor do I want to.

In fact, I am busy building my super-deluxe tiny basement at-home office that my wife and I may end up sharing, depending on our day-job situation when it's complete. (In fact, you can click here to search for DIY articles I have published.)

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