Here’s the tale of two stock trades that I made recently. In March I sold 43 shares of Limited Brands (LB), and in April I sold 84 shares of AT&T (T). Click on to find out what happened…
Trade #1 – Limited Brands (LB)
LB has been struggling of late due to declining sales and lower operating margins so its share price has taken a hit. As of 3/19, my position in LB was $511 in the red as I’d spent $2,255 in buying 43.695 shares that were worth $1,743.87.
I sold all my shares on 3/20 for a total of $1,734.44 including a $2 commission.
Then on 4/23, I bought 50 shares of LB for a total of $1,799.50 including a $2 commission. LB’s price had decreased about 10% due to additional weak company sales in the period after I sold and before my purchase.
The net result is that I’m back pretty much where I started, except that I now own 50 shares instead of 43. I also have tax losses of ~$500 that I can use to lower my tax bill.
Clearly Limited Brands have their hurdles to overcome. This is a high-yield dividend stock with a yield that’s over 6%, so high capital growth shouldn’t be expected. The company does have strong brand names and economies of scale so we’ll see what happens in the future.
Trade #2 – AT&T (T)
AT&T is another high yield dividend stock where I held 84.153 shares which I had purchased for $2,973.66 over the last five years. These were worth $3,013.52 on 4/10; a small gain of $40.
I sold all shares on 4/11 for a total of $2976.95 including a $2 commission. The sale was $3 higher than the purchase price.
On 5/14, I purchased 85 shares for a total of $2,742.83 including a $2 commission. This means I’ve increased my AT&T holding by 1 share and saved $200.
AT&T has now been approved to buy TimeWarner along with acquiring a substantial amount of debt so I’m hopeful to see how that goes. It seems to me that cord cutting will continue as the population becomes increasingly mobile. AT&T has wireless, broadband and now media content and DirecTV Now to replace cable tv and landline subscriptions. Is it enough? Who knows. But their dividend pays a reasonable amount of my cellular bill so I’m happy enough as a customer and shareholder.
My decision was really very simple and caused by a combination of two factors. I primarily wanted to get rid of the partial shares that I hold as a result from re-invested dividends.
Now there’s nothing wrong with partial shares. They’re normal if you are part of a DRIP (Dividend Re-Investment Program). And I’ve had these particular partial shares for ages now (just over five years) for both companies.
Their only disadvantage is that you can’t transfer them easily between brokerages. Only whole stocks can be transferred in kind.
My decision to eliminate them was really just because I didn’t like seeing the fractional number when compared to my other holdings in my Vanguard account. So much for detailed stock analysis! The longer I invest the more I see individual stocks as a gamble albeit one with a positive expected value.
At my brokerage, the only way to get rid of partial shares is to sell all of the shares at once. There’s no point in incurring additional taxes from capital gains so these trades only made sense if the stocks were at or below their cost basis. I figured I could tax loss harvest and buy the shares back later.
When selling at a loss, the US tax law penalizes you if you buy replacement shares within a 30 day period before or after the sale. When selling the whole position however, then only the 30 day period after counts. Please double check your own tax situation if you’re considering to sell a stock at a loss.
A lucky outcome
I don’t expect to do this kind of trading with individual stocks again, even if the outcome was generally positive both times. This just seemed like a good time to clean up my portfolio a little.
Nor would I recommend doing this every time a stock holding drops in value. The stock prices could have significantly increased during the period when I didn’t hold the stocks.
In my particular case, I invested the proceeds of the sales in VTSAX, the Vanguard US Total Market fund and bought the stocks back with new money from my paycheck the following month. So the trades became a bet that LB and T wouldn’t beat the US stock market over the 30 day period, rather than a bet that LB and T wouldn’t increase in value. Neither company beat the market performance over the 30 day period.
Quote of the day
How come anything you buy will go on sale next week?