Wednesday, July 17, 2013

Sometimes You Sell Too Soon

Prior to the great American Financial Crisis, I had a friend call me up and recommend that I look at buying a certain stock if things got dicey. It was the preferred shares of A+P (symbol GAJ). He said many hedge funds were holding it in their distressed portfolios, using cheap money and their 9.75% yield as a carry trade. After the talk, I thought that there must be others like this or even just high yielding securities. I was careful to split companies with real assets and products from the mini MBS high yielders. I found two: PWE and APL. This isn't about pats on the back. It's about selling too soon. If you believe in something and put your money where your mouth is, see it through. Go big.

During the stock nosedive of 2008, I waited for those three securities (GAJ, APL, PWE) and sure enough, when hedge funds blew up and faced redemptions, they had to sell those securities to raise cash. All three collapsed in price, and I scarfed them up. I dollar cost averaged around $7/share for GAJ, $6 for APL and $12 for PWE. GAJ rebounded in short order back to $25 share, so I waited for over a year, collecting huge dividends, and then sold it for a giant gain. I saw PWE cut their dividend, and float back up to over $20, so I sold it for a big gain. I sat there looking at APL. They were a natgas pipeline company. I felt this was a winner. I was moving into a house and needed to raise cash. I really disliked selling out, but I had seen it rise in price over 100%. I sold out around $13 or so. I felt pretty happy and started life in a nice home with a good down payment. I did pat myself on the back in spring of 2010.

The self back pat would turn into a facepalm. I checked APL again recently to see if they restarted dividends with the natgas boom, and sure enough they did and they were sitting around $39. I believed in natgas. I could see with different drilling and natgas service clients how they had dropped in size, and then slowly but surely came back when other industries didn't. I got lazy and lost the edge a bit and sold out for a decent gain. Heck, I had a down payment to make. Of course, I did the math after seeing APL at $39 and some of the dividend payments of the last few years. My mortgage would be almost gone had I just followed through and sat tight. Resist the quick buck, resist the easy gain, stop thinking small, if you strategize and plan big, wait for the payoff.

1 comment:

PRCD said...

You made some pretty solid money. I'd be happy with it.