Saturday, December 8, 2012

Taking the Hit on HPQ

HPQ had a new CEO, and because it met my investment criteria at the time – August 2012, I took the plunge and bought 400 shares.  After some initial bad earning news, I added 100 shares with the hopes of leveraging my basis down, and I decided to adjust my covered call strategy on the position to focus on cash yields.  Finally, last month, there was even more bad news – so I decided to give up.'

Counted by themselves, the returns I earned from call premiums and dividends are almost 9 percent, which annualized meets my goals on returns.  However, I’ve had the position called away this week on the ex-dividend day, so I have taken a sizable stock loss on HPQ. 

That smarts, but I figure that is something that will happen from time to time – it is one of three instances this year where I’ve decided I could do better reinvesting the capital than waiting for a comeback, the others being ACM and ADM. 

I plan on a series of 2012 recap posts later this month, one of which will feature the ACM, ADM, and HPQ trades.  Until then, here’s the story of the HPQ position.


8/20/2012 – Bought 400 shares for $7,919.00.
9/25/2012 – Bought 100 shares at $1,697.99.
Share basis of 500 shares is $19.23

Total Option Premiums:  $802.16
Total Dividends:  $52.80
Total Stock Loss:  -$3,634.10
Total Absolute Gain/Loss on the position:  -$2,779.14

So my actual loss on this position works out to a -28.90 percent return.  As I noted above, the returns from option premiums and dividends alone worked out to 9.00 percent or so, enough to meet my goals. 

It’s just an example of picking a bad stock.  Fortunately the portfolio model provides coverage for these periodic losses!


  1. Sorry to hear of this position loss JTC. I had just posted a chart on my blog about HPQ. I'm wondering if it will ever turn back up and break through the weekly trend line that has been in play since Feb 2011. May I ask why you bought it in Aug 2012 and what criteria it met? Do you ever use technical analysis? The chart may have kept you out of this trade UNTIL it started to tick upwards. I've got charts of it on my blog. Thanks for sharing and posting!

  2. Mary, Here are the criteria I normally use. Over the course of the year, I have expanded the range of stocks I consider to include Three-star rated stocks.

    · Nationally known brand and industry leadership
    · Established record of dividend payments ranging from 2-5% annually
    · An S&P STARS rating of 4 or 5 and a Morningstar rating of 4 or 5
    · At the time of purchase, the shares should be trading within the middle 40% of their 52-week range
    · No shares will be purchased that have an anticipated earnings announcement in the next month

    The details are included in my trading plan - which can be found by clicking on that label.

    I don't use technical analysis, partly because I don't fully understand it, and partly because in observing people's experience with it since the mid-80s - although the trading range criteria above is meant to partially accommodate it.