My Trading Update on Colgate and 3M

It has been awhile since I have been able to report to you about a sale on 'good news' which for me means one of my holdings hit an appreciation target. If you are new to my blog and my investing technique, let me briefly point out that after an initial purchase I try to sell my holding quickly and completely should it decline 8% (or 12% if I am at my minimum of 5 holdings) and call this a sale on 'bad news'. In these cases, I generally 'sit on my hands with the proceeds (or replace that position with a smaller position if I am at my minimum of 5 holdings). In this fashion, my portfolio 'management system' directs me to move towards cash on these sales and out of equities.

On the other hand, if one of my holdings hits an appreciation target, that is advances in price to a predetermined level, I plan on selling a small portion of that sale and using that sale as a 'signal' that I should be moving further into equities by purchasing a new position--indeed a position larger than the average size of my remaining holdings! Currently, I use 30, 60, 90, 120, 180, 240, 300, 360, 450% and so on appreciation targets to make these partial sale. These 'small portions' are currently set at approximately 1/7th of my holding--small enough to allow the remaining position to grow over time in spite of these continued sales. These sales are also useful in offsetting the many small losses that can accumulate with the quick sales on declines.

Anyhow, my 3M stock (MMM) hit an appreciation target on Friday. As background, I had purchased a small position of 33 shares of MMM on 3/3/09, just last month, at a cost of $43.64/share. On Friday, 4/24/09, I sold approximately 1/7th of my holding, a miniscule 5 shares, at $56.82/share, representing a gain of $13.18 or 30.2% since purchase. This gave me a 'buy signal' and I purchased 125% of my average size holding, or approximately $2,500 worth of Colgate-Palmolive (CL), which worked out to 43 shares purchased at $59.36/share to consist of my new 6th position.

I just reviewed Colgate on my blog and have explained why I might be interested in this 'recession-resistant' stock which pays a dividend and sports a moderate P/E.

Looking forward, my next partial sale of MMM on the upside would be at a 60% appreciation over my purchase price which would work out to a price of 1.6 x $43.64 = $69.82. On the downside, after an initial partial sale, I move my sale price up to the cost which would be at the $43.64 level. Insofar as Colgate is concerned, my first sale on the upside would be planned at 1.3 x $59.36 = $77.17. On the downside, an 8% loss (with 6 positions now in my portfolio my loss tolerance decreases to 8% from 12%) works out to .92 x $59.36 = $54.61.

Disclosure: The author owns CL and MMM.