Tuesday, January 09, 2007

Trade Review: PETM

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.


PETM was a stock I bought as an idea on a undervalued growth company. The main reason for purchase was just to get my feet wet and I felt PETM 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 PetsMart (PETM) at $25.99. 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 June 12, 2006, I sold PETM at $26.34 (which includes the .03 cent dividend paid in April). I had a gain of $0.35 a share or just about 1.3% in 116 days. Measured as R, my gain of $0.35 was 0.18 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 with what I know now, the Average True Range (thanks Bill) was $.63 and therefore my R was $1.89 (understanding why R is important comes from Trader Mike). Based on that, my initial stop of 1R should have been $24.10 and a 1R target of $27.88. Following the chart at Yahoo

It is clear, in hindsight, that PETM never came close to hitting the initial stop after I purchased. Looking at the Yahoo chart PETM hit a high close on May 10, 2006 of $29.18. Using a stop I would have exited at $27.38 on May 17 at the close. A stop would have resulted in a gain (with dividend) of $1.42, or 5.4% in 90 days. Stated as R, I would be up .75R.

Bottom Line

Once again I had a entry which, had I used a strict stop, would have resulted in a better gain than I actually realized.


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Petsmart is a good company.