Thursday, January 04, 2007

Trade Review: KO

Inspired by Bill, Trader X, and Ugly, I have decided to discuss trades I have made. These early trades were made as an educational endeavor to understand buying and selling of stocks using minimal amounts of capital. For the most part I bought and sold these shares as I developed my investing and trading process.


KO was a stock I bought as an idea on a undervalued company. The main reason for purchase was just to get my feet wet and I felt KO at that time was undervalued enough to present with a sufficient margin of safety that would perserve my capital. So I bought. And then I sold.


On February 16, 2006, I bought Coca-Cola (KO) at $41.36. As usual I cannot say that there was any particular signal that stood out at that time due to my newness, so again I would describe it as a random entry as discussed in Trade Your Way to Financial Freedom. With the benefit of hindsight, one could say that KO spent much of 2005 in a light down trend and then had the 20 dma cross over and above the 50 dma in early 2006 as seen here at StockCharts.

On May 4, 2006, I sold KO at $41.90. I had a gain of $0.54 a share or just about 1.3% in 77 days. Measured as R, my gain of $0.54 was 0.32 R.

Why did I sell? At that time I cannot say I had any real reason to sell. I was not nervous or anything. I simply thought I had a better investment I could use the money to buy. Looking back with what I know now, the Average True Range (thanks Bill) was $.556 and therefore my R was $1.67 (understanding why R is important comes from Trader Mike). Based on that, my initial stop of 1R should have been $39.69 with a 1R target of $43.03.

Following the Yahoo Chart it is clear, in hindsight, that KO never came close to hitting the stop, with the lowest point in early April at around $41.04. Looking at the Yahoo chart, KO has been a great trend since the day after I sold. In fact, sticking with my trailing stop I would actually still be in the trade today with a stop loss set at $46.93. Using today’s close I would have an unrealized gain (with dividends) of $8.48, or a gain of 17.1% (about 14% ex-divd) in a little under 11 months. Stated as R, I would be up 5.08R.

Bottom Line

Once again I had a entry which, had I used a strict stop, would have resulted in a decent gain.


Anonymous said...

KO goes great with Bacardi! :)

Thanks for the post. I find it interesting when people describe their trades, and their true thoughts.

Thanks for the honesty. I look forward to more of your trades!

Steven said...

Thanks I try to be up front good and is the only way to learn and help others....and like I always say

Honesty is the best policy...

The truth shall set you free...


I am a lwayer of course I tell the truth

(okay so maybe I made the last one up HA HA HA)

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One outstanding post.