by Mark Scheinbaum
American Reporter Correspondent
Boca Raton, Fla.
May 22, 2001
BOCA RATON, Fla., May 22, 2001 -- Do you have the discipline to take your winnings off the table and walk away? Never?
If you are willing to follow some basic rules, you might want to try my "20 Percent Rule," which in certain market conditions can make you a happy camper.
Here are some keys:
I primarily do this for covered call writing candidates, and dividend-paying, large-cap NYSE stocks, but the concept works for NASDAQ issues as well.
Let's take this example: You have researched Albertson's supermarkets (ABS). (Just for the record: Yes, we own a position in ABS.). Supermarkets are not your favorite sector, and earnings are tough this year, but the stock dropped from $39 to a 52-week low of $20 and has now drifted back up to just under $30. Are you the type of person who would be happy to sell Albertson's at $36? That's a 20 percent gain. If you always want to cover your commission costs, let's say $50, then set your target at $30.50 on the sell side.
If you bought ABS today at $29.65 and it hits $36 by November (still $3 short of its yearly high) you made 20% for your six-month investment, but it was an annualized return of (20 x 2) or 40 percent!
By the way, some great traders (not day traders) employ a 10 percent rule (selling ABS at $33) and make loads of money. I prefer working without stops, stop limits, or GTC (Good to Cancel) Orders. I prefer to watch my positions and don't want to give a free gift to market makers and specialists to "take me out" when news or takeovers are pending.
For example, say a great news story breaks about the grocery store chains overnight, and ABS, after closing at say, $34.75 opens at $35.50 and quickly jumps to $36.90 just after the opening. I want the ability to put in a sell order at $36.50, $37, or $38 - still wanting to take my 20 percent, but not forcing a sale at $36 when it is trading higher.
Some candidates for a 20 percent move? (Keep in mind even a 20 percent move in a year is a tremendous investment return compared to some "conservative" investments): Albertson's (ABS); Walgreens (WAG); Applied Materiels (AMAT); Ford (F); Ericcson (ERICY); and, Jefferson-Pilot (JP).
Mark Scheinbaum is chief investment strategist for Kaplan & Co., NASD,and chief market columnist for Money.net, the world's best financial news site..