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Eddie Herring

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  • Dividend Growth Investing Needs Some Loving Too! [View article]
    Frank

    Good for you! And thanks for the honor of being the recipient of your first comment.

    Eddie
    Aug 25 03:35 PM | 2 Likes Like |Link to Comment
  • Dividend Growth Investing Needs Some Loving Too! [View article]
    Hilo

    Thanks, I'm glad you enjoyed the article. You're right, there are many fish in the sea. And Chuck has an amazing level of patience. I would have given up after 6.5 years. HA!

    The two key words in that particular paragraph were "really wanted" and were intended to imply that the person had been watching and waiting to open a position on that stock. The other consideration I didn't include was what if they had been watching it for some time waiting for it to get to a fair or under-valued intrinsic worth. If they miss it it may be gone for a long time.

    The point that I keep trying to bring out, and you did a good job up above bringing it up, is that the use of options is simply another tool to have in the toolkit, times where they're appropriate and times where they're not. That doesn't make them suitable for everyone. A carpenter usually needs a hammer more than he does a wrench. That doesn't mean he might not occasionally use a wrench. A new investor should, in my opinion, tread slowly and carefully with them. But if people want to use them fine. If they don't that should be fine too.

    Thanks as always for your good observations.

    Eddie
    Aug 25 03:33 PM | 4 Likes Like |Link to Comment
  • Dividend Growth Investing Needs Some Loving Too! [View article]
    emac

    Thanks. I'm glad you enjoyed the article. And I hate you had to wade through a bunch of "stuff" to get to the worthwhile comments.

    I agree that options have their place and as I said earlier I still periodically use them. They're like anything else, they are simply another tactic to have in the arsenal for investing. But they're not something someone, especially a new investor, is going to pick up based on a few comments from an over-zealous poster. Let me comment on them just a little.

    First you should NEVER sell a put on a stock that you're not sure you want to own. You may have it put to you and regret owning it at that point. But let's say that it is a stock you want to own, MCD for example. I'll use monthly option prices.

    If you're willing to pay $95 per share for MCD you could currently sell a Sep 95 strike put for $1.16. You account gets credited $116 less commission costs (they vary but let's say $5) since each option represents 100 shares. If on the 3rd Friday in September (monthly options always expire on the 3rd Friday of the month) the price of MCD closes below $95 you get 100 shares put to you for $9,500. If it's above $95 you keep the $116 less commissions but you don't have the stock.

    What if you really wanted MCD and you sold that $95 strike put and it dropped to $92 but then rebounded and took off and on the 3rd Friday of Sep closed above $95 and kept climbing. You're sitting there wishing you had just bought it and now regretting that you're going to have to pay a higher price if you really want to own it.

    In an IRA when you sell the put it has to be cash secured so you have to set aside the $9,500 in the account to cover it. Quite frankly a lot of investors, especially new investors, aren't prepared to set aside that amount of cash if they're trying to build a portfolio. And many investors will already be fully invested and dividends or new cash contributions may not be coming in at a level to support that level of cash.

    Some margin accounts will allow you to handle options trades on margin but you have to have sufficient holdings to support the margin. If you get a margin call and can't come up with the cash then they sell off your holdings to get it. The brokers aren't going to lose money before you do. And many brokers limit what types of options you can do based on your experience.

    Now take the other side of the coin, selling calls. Let's say you own 100 shares of MCD and you decide to sell a call to "raise cash." MCD is currently priced at $95.13 and you decide to sell a September 96 strike call. It currently is $0.28 so you'd get $28 less commission costs. So if it closes above $96 on the 3rd Friday of Sep you get your 100 shares of MCD called away from you and you no longer own it.

    You could go out to a farther month and higher strike and get more for selling the option. For example an October $97.50 call is selling for $0.76. So if MCD closes above $97.50 on the 3rd Friday of October then you get it called away. If not you keep the $76 less $5 commission.

    Regardless if you decide to sell a call you should be prepared to have it called away. But what if you sold at $96 or $97.50 and all of a sudden MCD jumps to $100 or higher and you're sitting there wishing you still owned the stock. Now you're either forced to buy it at a higher price or try selling another put trying to get it put to you, if it will come back down.

    Options come in all kinds of different ways, monthly and weekly, long term called LEAPS, which are 1 or 2 years away. You can currently buy/sell a Jan 2015 option on MCD. They have even recently started mini-options which will control less than 100 shares but they're still very limited.

    I hope I don't open up another can of worms with this comment but I believe people need to realize that there aren't any methods out there that don't have their pros and cons. And not every method matches everyone's personality and desires. I agree with you it's a big tent and there are plenty of ways for individuals to match their particular style. And they should decide on their own how they want to handle their investments without someone telling them what they're doing is wrong and pressuring them into doing it another way.

    Thanks emac and best wishes for your investing.

    Eddie
    Aug 24 11:17 PM | 9 Likes Like |Link to Comment
  • Dividend Growth Investing Needs Some Loving Too! [View article]
    maybenot

    You're welcome. That may be where I remember that from, not sure, I just remembered the line. It makes a good point though.

    Eddie
    Aug 24 08:09 PM | 1 Like Like |Link to Comment
  • The 7 Habits Of Highly Effective Dividend Growth Investors [View article]
    C

    Excellent points. Well said.

    Eddie
    Aug 24 06:42 PM | 2 Likes Like |Link to Comment
  • Risk, Volatility And Dividend Growth Investing [View article]
    Ray

    Thanks, I certainly plan on being as safe as I can. And to enjoy the fruits of my labor. Thanks for the kind thoughts.

    Eddie
    Aug 24 06:10 PM | Likes Like |Link to Comment
  • Dividend Growth Investing Needs Some Loving Too! [View article]
    The Fox

    I was replying to Stevesteve. He asked "but doesn't the call side make more sense if you can collect dividends from doing the buying of calls?"

    Eddie
    Aug 24 06:06 PM | Likes Like |Link to Comment
  • The 7 Habits Of Highly Effective Dividend Growth Investors [View article]
    Kathy

    Thanks. I'm glad you enjoyed it.

    Eddie
    Aug 24 05:45 PM | Likes Like |Link to Comment
  • The 7 Habits Of Highly Effective Dividend Growth Investors [View article]
    Loophole

    Good question. I'll second what chowder said below but let me add this to it.

    I try to look at the experience of the specific members on the executive team along with the board of directors. You're correct that we don't get to sit down in a one to one with them so I read their background history on their website or anywhere else I can find info.

    I look at what has happened during their tenure, especially the CEO. Have the dividends continued to grow? How are the business fundamentals doing under the CEO's tenure? What kind of hard decisions have they had to make while in their positions (can find on the 10-K & elsewhere)? Were those decisions shareholder friendly?

    I also pay attention to what they're saying during their quarterly earnings calls. That means I'm trying to read between the lines but I'm really trying to look for clues that give me insight to their thinking. Can I trust what they're saying?

    Sometimes, depending on the company/CEO, I'll google their names to see what else I can find out about them. And I pay attention to any news that comes out via various types of media.

    It's not easy by any stretch but I attempt to make sure that I'm not investing in a company with a management team that doesn't have the capability to lead it to bigger and better things.

    Hope this helps,

    Eddie
    Aug 24 05:45 PM | 3 Likes Like |Link to Comment
  • Dividend Growth Investing Needs Some Loving Too! [View article]
    Sum

    Thanks. I found it interesting to compare their entire list to my own portfolio also and then to consider what they perceived as important to what I consider important to my own goals.

    Eddie
    Aug 24 05:14 PM | 1 Like Like |Link to Comment
  • Dividend Growth Investing Needs Some Loving Too! [View article]
    moatfrog

    Glad you found it interesting.

    Eddie
    Aug 24 05:03 PM | 2 Likes Like |Link to Comment
  • Dividend Growth Investing Needs Some Loving Too! [View article]
    B&H2012

    Your last sentence reminds me of the story of a broker showing a potential client their yacht and the client asking "where are your customers yachts?

    Eddie
    Aug 24 04:55 PM | 4 Likes Like |Link to Comment
  • Dividend Growth Investing Needs Some Loving Too! [View article]
    Jon

    Thanks. It's pretty nice to me watching the income come in each month/quarter and not doing anything for it other than the occasional monitoring of a company. Hope you're having a great weekend.

    Eddie
    Aug 24 04:53 PM | 2 Likes Like |Link to Comment
  • Dividend Growth Investing Needs Some Loving Too! [View article]
    Dave

    I'm like that old John Houseman commercial. I make money the old-fashioned way, I let the dividends earn it... :-)

    Eddie
    Aug 24 04:45 PM | 5 Likes Like |Link to Comment
  • Dividend Growth Investing Needs Some Loving Too! [View article]
    Steve

    You can't collect the dividends if you buy a call. Only the one who owns the stock can collect the dividends. As a call buyer you only own the option to buy the stock at a specific price by a certain date.

    Eddie
    Aug 24 04:42 PM | 3 Likes Like |Link to Comment
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