A few weeks back, I wrote a post called Getting Bullish Intel in which I began to lay out a thesis for my bullishness on the stock.
Yesterday, near the close, I began buying the stock on a day when the broader market got crushed and $INTC was down 4% and back into the 23s.
I want to lay out my thinking and actions here because it is a variation of what I have done many times over the years that has been successful and so it might be useful to others who are learning to invest. Plus, writing it out helps me define my process.
Here’s a bit about my thinking and strategy.
1. I want to stalk a stock that I like and wait for the opportunity to buy it right. This market is not one to chase and so when you have a plan you can get in when you want and not when you feel like you have to.
2. I am happy to miss the stock altogether as I am aware that new opportunities will always come along.
3. I am not going big here because the market environment is so volatile, complex and unpredictable.
4. Ideally, I will hold $INTC for a long time. All of my best trades, where real wealth has been created, have played out over years and not weeks. That said, I am prepared to close this position today and move on (see 2 above).
5. I like the dividend (3.4% yield as of my entry) especially in this low interest rate environment. Intel throws off a ton of cash, love that.
6. I want to reduce my cost basis diligently by selling near dated covered calls during periods of strength as often as the opportunity arises. Just as I was buying the stock into extreme weakness, I will be selling the premium when the stock is very strong. Over two years, I could lower my basis by 10-20%.
7. Usually, I like to enter these positions by selling near out of the money puts. This was not as attractive yesterday so I just bought the common.
8. I am managing risk in the following ways. First, this position is not on margin. Second, it comprises only a small percentage of my net worth and so even a zero would not ding me much. Third, I am prepared to sell for a loss, and will be watching most closely performance in Asia and the ultrabook initiative ahead of the next earnings report in January.
Overall, I am putting myself in a position where I may hold this stock for years (yes years) and make a lot of money while decreasing my basis slowly over time, may get taken out a lot sooner for a much smaller gain or may take a loss over the next few months. The key here is the opportunity – putting myself in a position to make a lot.
I usually post all trades and position changes in real time on StockTwits and you can follow along here.
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