Category Archives: seeking fair profit

Details of the Ideal Transaction

Posted on January 13, 2018 by | Leave a comment

On January 12, 2016, we took a position in Helmerich & Payne (HP) at $47.41.  At the time, HP was coming off of a high of $118.29.

According to Dow Theory, an investor should only expect one half of the previous move.  With this in mind, we charted an upside target of approximately $79.16 as the likely point for selling the stock as outlined in our July 2, 2016 posting.

On January 13, 2017, we sold our holdings in HP at $78.31 for a gain of +74%. For reasons unknown, HP declined from $78.31 to $43.02 by September 1, 2017, a decline of –45%.  An outline of the change from February 3, 2014 to January 12, 2018 is charted below.

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The Rationale

Naturally, this is the most ideal transaction that we could engage in.  Below we will lay out our observations on how we accomplished this task.

First and foremost, Helmerich & Payne is a high quality oil and gas driller that survived the crash that was experienced after the 1970’s.  In our view, if a company can increase their dividend over many years and survive a period that put a lot of competitors out of business, then you’re dealing with a good management team.  What follows are the details that we are looking at.

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Posted in 50% principle, Dow Theory, Helmerich & Payne, HP, seeking fair profit

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Our Primary Concern: Retaining Profits

Posted on May 2, 2011 by | 2 comments
We have frequently claimed that our goal was never to have trading strategy while dealing with dividend paying stocks.  In fact, the whole purpose of mining the field of dividend stocks is to increase the odds that we can compound our investment income.
However, a recent example reminds us of the importance of being cognizant that “good” stock selecting isn’t enough.  Adherence to Charles H. Dow’s concept of recognizing values and seeking fair profits is critical to long-term success in the stock market.
In the article titled “When Timing Meets Opportunity,” we’ve outlined the importance of timing when selecting stocks.  That article demonstrated that a focus on stocks near a new one-year low was about as good as any time for starting investment research.  Stocks at a new low represent the best marker for determining values.  Keep in mind that our focus is on stocks that increase their dividend every year or members of the Nasdaq 100.  Thereafter, an individual would need to run through whichever fundamental and technical analysis necessary to make a decision that seems appropriate.  Our philosophy is to consider our portfolio allocation based on what Dow Theory indicates.  If we’re in a bull market we have a higher concentration in a single stock.  If we’re in a bear market then we have lower concentration in a single stock. In general, this addresses the “value” component according to Charles H. Dow.
The aspect regarding seeking fair profits, another Charles Dow tenet, was outlined in our article titled “Seeking Fair Profits in Investment Portfolios.”  That article specifically references quotes by Charles Dow regarding when to take a profit on a stock.  Strangely, Dow recommended taking “fair profits” of 5%.  The New Low Observer Team is a little more adventurous since we seek 10% or more.  However, the point remains that as investors we need to put our expectations in perspective before we commit our money.  Not after we’re stuck with large gains or losses.
A recent example that we have come across is the case of Northern Trust (NTRS).  Northern Trust (NTRS) typifies what usually happens to a well-timed play on values when the appreciation for “fair profits” isn’t understood.  Northern Trust was recommended on September 1, 2010.  This was almost literally at the one year low from the period of September 1, 2009 to September 1, 2010.
After receiving “only” 10.96% in a period of 64 days, we issued a Sell recommendation on Northern Trust (NTRS) feeling that an annualized gain of nearly 40% wasn’t worth quibbling about.  In the sell recommendation, we indicated that we expected the upside target to be first $56 and thereafter $59.  Almost as impossible as it seems, Northern Trust peaked at $56.86 and turned down from there.  Nearly 7 months on, Northern Trust (NTRS) has ranged from a 19% gains to the current 4%. In addition, this represents a loss of nearly half of the gain that was generated at the time of our sell recommendation.
The situation with Northern Trust typifies our experience and observation when investing in dividend increasing stocks.  Great companies with considerable qualitative elements rise for a moment and revert back to their prior low for inexplicable reasons.  In regards to the general ebb and flow of individual stocks, we’re primarily concerned with accepting what is reasonable and fair rather than what we typically want which is usually for the stock to got back to the previous one-year high.
As rudimentary as it seems, we feel that an understanding of values and seeking fair profits, as espoused by Charles Dow, is essential to long-term success in the stock market.
Please revisit New Low Observer for edits and revisions to this post. Email us.

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Posted in Charles Dow, Charles H. Dow, Northern Trust, NTRS, seeking fair profit, values

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It Isn’t Easy Being Green

Posted on March 27, 2010 by | Leave a comment

One person that I think small investors of today can learn a lot from is Hetty Green. Mrs. Green, born Henrietta Howland Robinson in 1834, increased her investment holdings from $6 million in 1865 to $100 million, in cash, by 1900. And while the average investor doesn’t have six million dollars to start with, the lesson to be learned is far greater than the amount an individual has to invest.

The goal for this “infamous” investor was “to make and keep 6% every year.” How was this accomplished? Hetty Green never aimed for the “big hit” or large gains in the stock market. Instead, she sought reasonable gains which were secured and then rolled over to “real estate mortgages, government and municipal bonds, and other safe, income-oriented investments.” The money was moved out of the safe investments when the stock market was at extreme panic lows.

There are two points about the preceding paragraph that I feel are important. First, seek reasonable gains or “fair” profits. Never set out to beat the stock market. The market will fail to perform at some point, either individually or as a whole, and that is the opportunity to buy the stocks that you want. As you’ll see in the section About This Site, We only seek to exceed the rate of return on “guaranteed” money while all stock purchases are done after the price has reached an extreme on the downside. Seeking “fair” profits implies that an investor considers selling a stock after achieving the goal of exceeding the return of “guaranteed” money rates.

The second point is that without panics or crashes small investors have little chance of succeeding in the stock market, especially through the use of mutual funds and ETFs. Real wealth in stocks is built on understanding values and then seizing those values, en mass, whenever possible. Most great “speculators” have secured their wealth by investing during panics and with the selection of very few companies, typically 3 or 4. With the government constantly trying to smooth out the business cycle, what ends up happening is a concerted effort to keep the wealth of our nation in the same powerful hands with the guise of protecting the average citizen.

Unfortunately, there was a tremendous price for Hetty Green to pay in order achieve such outstanding gains. Mrs. Green was known to avoid spending money at every turn. As an example, when her son was in need of medical attention on his leg, she concocted her own remedy. Her son later had to have his leg amputated due to the lack of proper medical attention.

After getting married to Ned Green, a well known speculator, Hetty's image didn't improve. In fact, Hetty Green was known as the "Witch of Wall Street." With her black dress and hat, miserly ways along with above average financial success didn't endear Hetty to the male dominated confines of Wall Street. However, her 9.50% after-tax returns certainly couldn't be ignored.

Sources:

  • Fisher, Kenneth L. 100 Minds That Made The Market. Business Classics. 1993.
  • Lewis, Arthur H. The Day They Shook the Plum Tree. Harcourt, Brace & World. 1962.
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Posted in Hetty Green, seeking fair profit