I made a move a few weeks back to pick up some shares of Union Pacific (UNP) and Norfolk Southern (NSC). My timing couldn’t have been much worse… Although I tried to purchase the stocks during a pullback, I was indeed making the mistake of “catching a falling knife”. With that said, I do feel somewhat fortunate that I only invested funds that were allocated to my “play money” account. In other words, I was trading capital that I could afford to lose.
Last Monday, I made the decision that it was time to part ways with UNP. Although I believe that UNP is still a great long-term holding, I foresee a lot more short-term pain in store for shareholders. The dividend yield also isn’t quite high enough to motivate me to hold on and ride out the wave. I liquidated all 52 shares of UNP for $98.30/share. I originally purchased shares for $103.40/share back on May 18. Total realized losses were $265. I sold out just prior to the earnings report, which in hindsight I’m glad I did. UNP has stumbled another 5% since and is trading at $92.20/share at this time of writing.
With the proceeds, I rolled the dice and picked up 355 shares of Market Vectors Gold Miners ETF for $14.10/share. As I’ve mentioned before in previous posts, I believe that commodities, such as mining stocks, are greatly oversold right now. There may very well be a lot of long-term upside in this industry once things finally turn around… Sure, the price of gold and other commodities will most likely keep taking a hit over the next few months, but I felt comfortable enough at this time to initiate a small position. GDX has lost over 70% in the last 5 years as gold’s bull run started to turn bearish. This is a risky play, but it’s my attempt at “buying low” and hopefully I’ll be able to sell back much higher later. I would categorize this move as a medium-term hold.
This morning, I decided to part ways with my other railroad holding, NSC. I sold out of my NSC position by liquidating 52 shares at $83.15/share. I originally purchased NSC shares for $96.60/share on May 20. Total realized losses were $709.38.
I immediately used the proceeds to purchase 125 shares of Kinder Morgan Inc. (KMI) at $34.48/share.
Similar to NSC, KMI is down over 20% in the last 3 months. So, in essence I traded out of one “loser” for another. In the process, I get to not only claim a tax loss, but I also get to swap out of a low-yielding dividend growth stock into a high-yielding one.
I figure, if I’m going to “ride out the wave”, I might as well do so while collecting a much higher dividend in the process…
The first move I made was purely speculative, as I’m placing a small bet on the rebound of commodities in the medium-term. By trading out of UNP and initiating a small position in GDX, I put some skin in the game. But not too much. My gut feeling tells me that there’s some more RED in store, and I think it’s somewhat probable that GDX will retract another 15-20% soon. If that happens, I might have to inject some additional capital into some mining stocks.
With the second move, I went ahead and took some realized losses, which should help me on my tax return (hopefully). Because I traded out of NSC and into KMI, I essentially swapped positions from one beat up stock into another… I really do like the price of KMI at these levels and I don’t mind getting into a few shares right now while the dividend yield is over 5.6%. Similar to the first scenario, I don’t feel like the bottom is in yet, and the oil and energy (and pipelines) sectors still have a ways to go before they reach a final bottom.
With both moves, I didn’t inject any fresh capital, as the bulk of my resources are still being held in cash, waiting for an even better entry point to get back into the game. I simply swapped out of positions from my trading account, which I had previously allocated $15,000 to. I still hold shares of Walmart (WMT), which has not surprisingly also taken a bashing recently…
What can I say? I made some really bad moves and ended up catching a lot of falling knives… Live and learn.
Let’s hope these two most recent moves will work out better in the future!