Getting free-carried - always best option?

[Atlas79]

I will probably soon have a chance to get free-carried in a certain energy stock (one of those high risk / high reward ones originally bought under 5c.) Am currently torn between the attractive idea of getting free carried & selling half my holdings when it doubles, or just raising the stop loss as long as it rises; ie, why sell a rising stock?

Wondering what posters' thoughts are on such matters. Have you ever gotten free-carried then later come to regret it as the share rose even higher? Or do you always get free-carried when the opportunity arises?

Thoughts appreciated...

 

[BradK]

I will probably soon have a chance to get free-carried in a certain energy stock (one of those high risk / high reward ones originally bought under 5c.) Am currently torn between the attractive idea of getting free carried & selling half my holdings when it doubles, or just raising the stop loss as long as it rises; ie, why sell a rising stock?

Wondering what posters' thoughts are on such matters. Have you ever gotten free-carried then later come to regret it as the share rose even higher? Or do you always get free-carried when the opportunity arises?

Thoughts appreciated...

Depends if there are other opportunities as good or better... well done.

 

[rabbit59]

Depends if there are other opportunities as good or better... well done.

Agreed Bradk, if your money can be used as a separate benefit where it will make just as much, or more gain, then definately, however, if there is no similar option, i would say keep it where it lays...

 

[So_Cynical]

Establishing a free carry position is a major part of my trading/investment plan, i look at it in terms of reducing my risk in any single stock and switching dollars from the profit column to the capital column...i have free carry components in about half my portfolio ranging from 40% to 60% of shares held in any one stock.

I look at the dividends from those free carry shares as profit on profit...don't know if i would be keen to do it in a non divided paying stock, same for a stock that was never likely to pay a divi.

 

[pixel]

Similar to the debate about lifting stops to "break even", this topic has me also slightly bemused.
I treat the contents of my portfolio as part of my overall assets, or "net worth" if you prefer. The faster it rises, the happier I am. I even try to manage its composition in such a way that each part contributes to the overall value increase. Whether I paid $10 or $1 for a share, once it has been sold, the profit is mine, and it will again have to join the queue of competitors for another slice of my cash.

If a share has given me a good profit in the past - maybe to the point that total profits exceed the current cost base, that may give it a slight edge over others. The only advantage, however, lies in the fact that I know this stock a little better than one I've never traded. The flip side is, I'm also in danger of "falling in love" with it - an emotion that blunts my judgment.

The market doesn't give a toss whether I've paid too much or nothing for a share; it doesn't even know I exist. Applying my own psychological frame of mind when deciding whether to buy, hold, or sell is therefore only restricting my freedom of choice.

In this context, I like a piece of advice from Phil Carret’s The Art of Speculation:

If you have 1000 shares of a stock worth currently, say, $9, disregard entirely the price you paid for it. Rather ask yourself this question: “If I had $9,000 cash today and wished to buy some security, would I choose this stock in preference to every one of the thousands of other securities available to me?”
If the answer is strongly negative, sell the stock! It should not make the slightest difference whether the stock cost you $5 or $13.
Your entry price is totally irrelevant, but the average punter gives it considerable weight.

 

[So_Cynical]

If you have 1000 shares of a stock worth currently, say, $9, disregard entirely the price you paid for it. Rather ask yourself this question: “If I had $9,000 cash today and wished to buy some security, would I choose this stock in preference to every one of the thousands of other securities available to me?”
If the answer is strongly negative, sell the stock! It should not make the slightest difference whether the stock cost you $5 or $13.
Your entry price is totally irrelevant, but the average punter gives it considerable weight.

This sorta stuff really erks me, the way people talk in absolutes is ridiculous. :aufreg:

The price i payed for XYZ determines my return as far as dividends go and also determines my return per share regardless of my selling price....i currently own 2 stocks that i have significant free carry components giving me gross dividend returns of over 14% PA. Now please tell me how my purchase price for those stocks is irrelevant?

 

[awg]

It could depend somewhat on what proportion of your portfolio it represents.

Also, your investment style, ie are you more a mechanical technical trader... or someone who pores over the company statements and fundamentals, salivating for the next resource upgrade.

fwiw, I prefer to use trailing stops, bob each way

 

[pixel]

The price i payed for XYZ determines my return as far as dividends go and also determines my return per share regardless of my selling price....i currently own 2 stocks that i have significant free carry components giving me gross dividend returns of over 14% PA. Now please tell me how my purchase price for those stocks is irrelevant?

Neither I nor Phil Carret have been referring to dividend calculations. The point in the example applies to the decision when a share should be sold. The decision to sell is independent of my personal history - whether it's made me money in earlier times, whether it's paid good dividends in the past...

As for the "free carried" shares paying 14% dividend, those 14% must also be calculated of the current share price, rather than my personal cost base: Say, I bought XYZ for $1, and it pays 14c dividend a year. If the share is currently trading at $10 a share and no longer rising, its yield is no longer 14%, but a mere 1.4%. If ZYX shares were also trading at $10, but paying 50c dividend per annum, I would be better off taking the $10 and buying ZYX - all other things being equal.
So, in that case too, what I paid and how much profit I got out of XYZ in the past is irrelevant wrt the question "when to hold 'em, when to fold 'em, when to walk away, when to run..."

 

[pixel]

fwiw, I prefer to use trailing stops, bob each way

fwiw, my method exactly.
Doesn't mean it's the only way to trade; I'm a trader, not a missionary

 

[So_Cynical]

As for the "free carried" shares paying 14% dividend, those 14% must also be calculated of the current share price, rather than my personal cost base: Say, I bought XYZ for $1, and it pays 14c dividend a year. If the share is currently trading at $10 a share and no longer rising, its yield is no longer 14%, but a mere 1.4%

There are alot of people who think like this and im not one of them...the money i payed for my XYZ shares is capital, the dividends are return on that capitol, the profit i will make on exiting or selling down my XYZ holding is only relevant after the sale....before that its just unrealised profit, just numbers.

 

[nunthewiser]

Blah blah blah .......... hear the same ole story ."trailing stops this and trailing stops that "

how many of YOU actually get it right ?

I mean keep fairly optimum profit on a runaway trade that stops in its tracks ONLY to bounce sstraight after you get hit ?

Not dissing trailing stops , as i use them in my trading constantly , but what i am dissing is a closed mind to other forms of profit protect and profit freedom.

I have been using the " free ride " for years . MAINLY with penny dreadfuls but i also use it on the likes of PLA , MTS , MGX etc.

On the dreadfuls i will retrieve my ORIGINAL capital as soon as its around the 60-120% but still using a trailing stop up until around that point just in case im not as clever as i think ......... but after there with capital removed i am happy to let the rest float around with a hugely broader based trailing stop to catch any extra outlieng moves it may want to make.

I also use this " free ride " as a base for any extra trades in the meantime as a safety buffer in times of ann gapping , pre opens , trading halts etc etc. with it bringing my average TRADE entry down to a very nice level that can cover these major% moving factors.

with my holds on PLA , MTS , MGX, CSL etc etc I use the " free ride " strategy to BUILD on my position ..... I trade the actual stock on a regular basis but i also hold parcels on a LONGER term viewpoint .... The shorter term trading i use to build the position in the sense of any profits gained in the trade i keep stock instead of actual cash gains but still removing original capital.

Hey i may be right , i may be crazy ...........


But i do know that just cos ya read something in a book dont make it right.


have a nice day

 

[So_Cynical]

Blah blah blah .......... hear the same ole story ."trailing stops this and trailing stops that "

how many of YOU actually get it right ?

I mean keep fairly optimum profit on a runaway trade that stops in its tracks ONLY to bounce straight after you get hit ?

I trade the actual stock on a regular basis but i also hold parcels on a LONGER term viewpoint .... The shorter term trading i use to build the position in the sense of any profits gained in the trade i keep stock instead of actual cash gains but still removing original capital.

Hey i may be right , i may be crazy ...........


But i do know that just cos ya read something in a book dont make it right.


have a nice day

Well said Nun...i reckon the buy and build/free carry strategy is a great way to build long term positions in stocks you want long term exposure to.

Since Feb 09 ive basically been recycling the same 15 grand (adding about 400 a month) buying into dips, exiting most of my capital and leaving what's left and the profit in for the dividend return and as a long term hold...rinse and repeat.

In 13 months ive increased my portfolio from 10 stocks to 20 and portfolio value by around 200% and increased my dividend stream by about 160%

 

[frugal.rock]

Was going to start a Freak Harry thread (free carry), but found this thread and figured it's a good base to go from, with concepts I haven't got my head around yet...I don't think they are hard, but a certain amount of brain power is required and am not in a position to apply said brain power, ATM...

So, moving along, after reading @Dona Ferentes using the Freak Harry, (free carry) (AR9?) method, I decided to give it a go.

So, I kept the profit portion of a MRQ (MRG Metals LTD) trade in stock, as a longer term hold.

Despite the stock being down around 20% from original purchase price, it's a free investment, which leads to....

The original trade was purely a TA trade, now I realise, I need to do FA due diligence to assist in a decision case of keeping short, mid or long term...
About time I got 100% serious.... document thoughts, anticipated timeline's etc etc

For anyone interested, MRQ was well supported at the $ 0.01 level on Fridays Trump Dump but always DYOR.
( MRQ was mentioned in the Popping Festering Cankers thread.)
Cheers

 

[Dona Ferentes]

So, moving along, after reading @Dona Ferentes using the Freak Harry, (free carry) (AR9?) method, I decided to give it a go.

So, I kept the profit portion of a MRQ (MRG Metals LTD) trade in stock, as a longer term hold. Despite the stock being down around 20% from original purchase price, it's a free investment, which leads to....

The original trade was purely a TA trade, now I realise, I need to do FA due diligence to assist in a decision case of keeping short, mid or long term... About time I got 100% serious.... document thoughts, anticipated timeline's etc etc
For anyone interested, MRQ was well supported at the $ 0.01 level on Fridays Trump Dump but always DYOR.
( MRQ was mentioned in the Popping Festering Cankers thread.)

Sounds like a plan. The thread title Getting Free Carried - (tick) ... Always Best option (Naw, challenge).

You have to have faith, or an understanding, the company is going to grow, and go places. Having another arrow in the quiver is always useful; for me, it's about Getting Rich Slow ,, rather than Getting Rich Quick. Tends to work better, be longer lasting.

I'm all for owning a range of shares, building assets that will pay dividends. I am at that point now because there are a few others held that are Free Carried.... CSL, MND, BHP and they pay me twice a year. Three times, when the franking credits rebate at tax time.
"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

So now, as well as the rather rapidly achieved AR9 Freak Harry, I've done same with MP1 and TLG. I'll be watching to see they transform to productive earners rewarding shareholders down the track.

Of course it's not all plain sailing; a sobering one was BLA, bought at $1.00, added to during cap raises but disposed of in dribs and drabs along the way as well, such that I was free carried. Then there was a sorry and rapid fall from grace and hard to get rid of shares on the way down. Managed to sell but not at the price I'd wanted. From a holding over $300K I trousered about $45K.

 

[jbocker]

I used to do this, thinking I hold the free carried shares for dividends. There are longer term things to consider that I found. While it is all good to say you have recovered your money, you will always need to keep records of the cost base per share for Taxation purposes. The share can become non dividend and/or fall in price and can be a small holding (particularly if they are amalgamated/condensed), the sale brokerage fee can be high compared to the return. Worse, it goes bust and spend eternity in administration. Nuisance ugly things sitting in your records.

I have one, its current price is 0.01 cents. It was consolidated and put into a new company and consolidated again, for me to get the money back I need to sell each share for 12.44.

 

[MrChow]

What's so special about that 1 specific unit though (in the OPs post)?

If it's 5% of your portfolio (as an example) there are 19 other units of same monetary importance.

Also you can lose 1 unit in many ways. If a stock you bought remains at current value but your 2nd choice you passed on doubled, that decision cost you 1 unit too.

It happens all the time so I wouldn't have a special strategy for one thing compared to the next.