Tag Archives: seeking

Adding To Positions: A Simple Rule

I want to share a simple rule that has worked well for me over the years. I’ll explain the how and why, and then wrap up with some thoughts about when this rule might not be appropriate. So, imagine you are in a position, and then, for whatever reason, you know it’s right . In fact, it’s so right that it’s time to add to the position, and so you do. Now, think about what happens if the trade turns out to not be right, or to not develop as you expected – what do you do? Here’s the rule: if you add to an existing position and it does not work out as expected, you must get out of more than you added . Simple rule, but effective. To put numbers to the idea, say you are long 5,000 shares of a stock. As the trade moves in your favor, you get a signal to add to the trade (and that “signal” could cover many possibilities.) So, you add 2,000 shares. Somewhere down the road, the trade does not work out, and probably is under the price at which you added. Now, you know the right thing to do is to reduce the position size, and you must do so, but how much do you sell? Answer: more than 2,000, and probably more like 4,000 than 2,100. You now hold less than the original position size, and you’ve booked a loss on part of the position, but you’ve also reduced your risk on a trade that was not developing as you thought it might. One of the classic trading mistakes is to have on a winning trade, add inappropriately, and have that trade become a losing trade. For some traders, being aggressive and pressing when they have a good trade can add to the bottom line, but there is a tradeoff: when you become more aggressive you do so by taking more risk. The psychological swing – going from aggressive to wrong – can be one of the most challenging experiences for a trader, and many mistakes happen in this heightened emotional space. The rule of exiting more than you added is a simple rule, but it protects you from yourself. Now, no rule fits all styles of trading all the time. There could be styles of trading for which this is inappropriate, (for instance, when we add planning to scale in as the trade moves against the entry.) However, for “simple”, directional technical trading, this rule might be helpful in many cases. So much of the task of trading is just about avoiding errors and mistakes, and correct rules lead to good trading.

Everyone Wants To Hit The Long Ball

If you ever go to a golf driving range count the number of people hitting their driver relative to the number of people hitting their pitching wedge. You’ll notice that the vast majority of amateur golfers focus excessively on how far they can hit a golf ball. This makes no sense though. If you’re like most amateurs, you probably have trouble breaking 100. And that means you’re going to pull your driver out of your bag fewer than 15 times including the par 3 holes (unless you’re like me and you regularly keep that driver out to account for Mulligans). The point is, about 15% of your shots will occur with the driver. 85% of your shots will likely occur with an iron or putter. The short game is far more important than the long game. Golfers focus on hitting the long ball because it is a greater form of instant gratification. It’s the what have you done for me lately effect. A golf round can last for 3, 4, 5 or 6 hours. A few moments of instant gratification can make a seemingly arduous day appear worthwhile. Of course, this is precisely the wrong way to win these games. You win by doing lots of little things right and avoiding big mistakes. Ironically, going for the long ball increases the odds of making big mistakes, which increases your chances of performing poorly. The investing corollary is the constant reach for the next Apple (NASDAQ: AAPL ), the next Microsoft (NASDAQ: MSFT ), the “market beating” fund manager or what Peter Lynch called the “10 bagger.” This chase is as alluring as the long ball in golf. And it’s just as destructive. But like most amateur golfers, the average amateur investor doesn’t fully realize that what they’re often doing here is increasing the odds of making big mistakes in their portfolios rather than increasing the odds of winning (achieving their financial goals). For most of us, achieving our financial goals has nothing to do with finding the next Apple, “beating the market” or landing the next 10 bagger. For most people, allocating their savings boils down to two simple goals: Maintaining your purchasing power. Avoiding an excessive amount of permanent loss risk. But the allure of the long ball and instant gratification is often too enticing to ignore. And so we keep pulling out that driver. Again and again and again.

Income Hunters Left Salivating At Dominion Resources’ Future Growth Prospects

Summary On-track, long-term growth-oriented renewable energy generation projects will fuel revenues and earnings growth. Company’s timely and on-budget execution of ongoing projects will create secure and sustainable cash flow base. Strong growth opportunities will bode well for the stock valuation. Sale growth expectation of 5.13% for D is well above the industry median sales growth expectation. Utility stocks have remained a popular investment option for investors, as utilities usually have large exposure to regulated business operations. Additionally, the predictable cash flow base allows utilities to make healthy cash returns, and makes them attractive dividend stocks. Dominion Resources (NYSE: D ) is one of the largest utilities in the U.S., which serves a broader U.S. area with its wider portfolio of energy generation assets. Owing to the company’s on-track, growth-centric projects like regular expansion of renewable energy generation asset portfolio through acquisitions and construction projects, and steady growth of midstream business will drive its future financial growth. Moreover, D’s on time and on budget Cove Point Facility and Atlantic Coast Pipeline (ACP) project will support its long-term growth. The company’s dividend growth has also remained strong, as it generates strong and sustainable cash flows. Additionally, D’s strong balance sheet position supports its dividend growth plan and future growth ventures. The company’s policy of allocating a decent portion of its cash flows for funding growth plans has been helping it apply for constant rate hikes, thereby adding well towards D’s financial numbers. As per the company’s long-term growth plans, average annual capital spending over the next five years will be $3.2 billion , which signals at a bright outlook for the stock. Of all its targeted growth areas, renewables remain most attractive. Over the years, the company has developed itself as a leader in renewables space, with its wider portfolio of renewable energy generation portfolio. To keep its solar energy generation portfolio strong, D is still making solar energy generation deals; the company acquired an 80MW solar energy generation portfolio in VA, which is expected to start construction by the end of 2015, whereas operation of the project will begin in fall 2016. Therefore, this acquisition will help D achieve its target of having established total 425MW of solar energy generation capacity set-up by the end of 2015. Additionally, plans to build a 400MW solar plant in Virginia has been announced, which is expected to begin operations in the next five years. Given the fact that the company will be able to recover the cost of these ongoing hefty solar energy generation-based projects by rate case increases, I think D will witness a boost in its future sales and earnings growth. Moreover, the construction of the company’s Cove Point facility is on track. By the end of 3Q’15, the Cove Point Terminal facility was 47% complete, and remains on time and on budget. After its completion by the end of 2017, the Cove Point Terminal will expand the company’s operations; D will be able to export 5.75 million metric tons of LNG, at its full capacity, every year after its completion in 2017. Furthermore, the company’s another important project, ACP, which is expected to come in operation in 2018, is well on track thus far. Additionally, there are 13 ongoing projects worth $1.2 billion, which will move more than 2 billion cubic feet per day for customers by the end of 2018. Given their ability to expand D’s operations; I believe these 13 ongoing projects combined with Cove Point and ACP projects will aid the company in meeting its long-term earnings growth target and will augur well to improve its profit margins. Furthermore, the company’s investments for the expansion of its Midstream business are on track to supplement its long-term earnings growth plan. Lately, D’s Midstream business acquired a 25.9% stake in the Iroquois pipeline, in order to issue 8.6 million limited partnership units to New Jersey Resources and National Grid. Also, the company’s board has authorized $50 million investment over a period of the next 12 months to buy LP units of Dominion Midstream Partners in open markets. I believe D’s sizeable investments in Midstream business will unlock a substantial return on the entering service. D’s operations have been providing a stable source of cash flows to help it fund its hefty dividend payment plan. The company offers a healthy yield of 3.85% . Given the strong strategic growth prospects of its long-term energy generation projects, well-headed for witnessing earnings and profit margin growth, I believe D’s dividend growth outlook is pretty impressive. Additionally, the expected continuation in the company’s balance sheet strength, shown in the graph below, supports my view about its ability to meet dividend commitments in the longer run without any stress of deterioration in the balance sheet position. And I think D’s management’s targeted dividend growth rate of 8%, from 2015 to 2020, looks highly achievable. Source: 4-traders.com Summation D’s on-track, long-term growth-oriented renewable energy generation projects are rightly headed to fueling its revenues and earnings growth, and to boost its free cash flows in the years ahead. The company’s timely and on-budget execution of ongoing projects like ACP and Cove Point indicate that its efforts to create a secure and sustainable cash flow base will positively affect its stock price by enabling it to meet its dividend commitments in the longer run. Also, strong growth opportunities will bode well for the stock valuation. D is currently trading at a higher forward PE ratio of 17.46x , in contrast to its peers’ forward P/Es (American Electric Power Inc. (NYSE: AEP ) has a forward P/E of 15.04x and Exelon (NYSE: EXC ) has a forward P/E of 10.83x ). D’s higher forward P/E is justified I think, because it has a higher future growth potential than its peers. D’s earnings in the future are expected to grow at an average annual rate of 6.23% . Moreover, the sale growth expectation of 5.13% for D is also well above the industry median sales growth expectation of 1.04% . Therefore, I think D stays a good investment prospect for income hunting investors.