Friday, January 12, 2007

Trade Review: MSFT

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.


MSFT 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 MSFT at that time was undervalued enough to present with a sufficient margin of safety that would preserve my capital. So I bought. And then I sold.


On February 16, 2006, I bought Microsoft (MSFT) at $26.80. 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.

On April 24, 2006, I sold MSFT at $27.20. I had a gain of $0.40 a share or just about 1.5% in 67 days. Measured as R, my gain of $0.40 was 0.33 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 though I had a better investment I could use the money to buy.

Looking back at the one year chart at Yahoo it is clear, in hindsight, that I was real lucky to sell because MSFT took a nose dive a few days later.

Bottom Line

While at the time of purchase it was fundamentally undervalued it was clearly overvalued from a technical standpoint. But sometimes it is nice to be lucky, I just don't count on it all the time.


George said...

You are falling into the trap of the trader. If you truly determined the value of MSFT, why would you sell when it became $0.40 cheaper. Heck, back in May you commented that MSFT could be worth $34.50 if it grew owner's earnings by 6%.

Today MSFT hit a 5-year high I believe and is currently at $31.34. I'm going to reassess my intrinsic value estimate of MSFT this weekend, but I believe that it will come out to at least $30 per share.

Steven, don't be seduced by the Dark Side, err I mean traders. Remember what you have learned from Graham and Buffett. Heed them well.

Steven said...

When I bought MSFT last February I did so as a means to get used to the buying and selling process. Basically I wanted to understand what it would "feel" like to own stocks without the risk of losing too much money. So it may seem that I am buying and selling these intial stocks without regard to fundamentral or technical factors. So my goal was just to buy, own, and sell.

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