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New Free Stock Strategy: buy, when up 40% sell just enough to get money back. April 10, 2007

Posted by deminvest in EXPE Expedia, investment, investment strategies, stock faq, stocks.
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I changed my Free Stock Strategy with the New Free Stock Strategy:

1) I chose a stock I like every month, I discuss it with Blog readers, then I invest $ 1000 on the stock.

2) I wait until stock’s value goes 40% up.

3) I sell enough shares of the stock for the total amount invested, including commissions.

4) Remaining shares of this stock are “Free Shares”. I keep them forever. They are mine, but I haven’t paid them :-).

strategy.jpg

If price of my shares goes down or goes up less than 40%, I hold.
Let’s use an example from last week:

1) On November the 7th 2006 I bought 60 Expedia shares at $16.44 each, spending $986.4 + $19 commission = $1005.4 total

2) Five months later, on April the 4th 2007, I sold 45 Expedia shares at $23.44 each, getting on my bank account $1054.

3) I still own 15 (EXPE) Expedia shares that I got for free and are worth $360.3 ($24.02 each… yes I should have waited to sell…).

Of course this example is a very favourable one. Most stock that I buy do not go up 40% in 5 months! Some go up a little bit, some down and one, NEW Century Financial even filled for bankruptcy last week, burning $1700 that I had put on it.

Let’s stop thinking about NEW Century’s sad story, and let’s look at the “great” advantages of my “Free Stock Strategy”:

1) Over a long time-span, by investing $1000 every month and by only selling on 40% gains, I end up buying most shares when markets are down and selling most of them when when they are up, which is obviously a good behaviour.

2) Over a long time-span most of my stocks will be free and I will get most of my invested cash back. Even in bad times, when markets collapse, I am still buying stocks at very low prices. As soon as markets bounce back, I get 40% gains on those stocks that I have bought close to minimum. This will reduce risks for me.

3) By choosing a different stock every month I end up owning

Old free shares strategy required shares to go up 30% only. I changed it because:

1) I noticed that most of the shares that went up 30% did also go up 40% in a short time. Waiting a little bit more to sell would have increased my earnings most of the times.

2) Too much of my earnings were eaten up by commissions: I invest $1000 on each stock. Since I have to pay commissions up to $20 every-time I buy or sell, I ended up paying up to $40 each time I apply my strategy. $40 commission on a $260 gain means the bank gets 15% of my earnings: too much. If I wait a bit more it becomes $40 for a $360: 11%. Still a lot, but more acceptable.

Comments»

1. Yesterday I sold 45 Expedia (EXPE) shares at $23,44 each. « Democratic Investments by the people for the people - April 11, 2007

[…] Yesterday I sold 45 Expedia (EXPE) shares at $23,44 each. April 11, 2007 Posted by deminvest in Internet stocks, EXPE Expedia, stock I own, stoks I own, growth stock, stocks. trackback Why? Because of my Free Stock Strategy […]

2. Dennis Goedegebuure - April 17, 2007

My strategy would be to sell all the shares, and pay only twice the commissions. Now owning a great number of “free” stock, will give you not only exposure to volatile stocks (as they went up 40%), but also exposure to another commission when you want to sell these.

If you have already a 40% increase, why not take the profit, and reinvest in new growth stock.

3. deminvest - April 18, 2007

Dennis, your suggestion is good for most investors. Actually savvy professional investors do as you suggest. They either keep the stock if they believe it will continue to go up or they sell all of it and take profits.

I do need a different strategy for several reasons, mainly psychological, but still important for me:

1) I don’t want to get too angry or too disappointed if I sell a stock that continues to go up. Stocks I own (AES, DCX, BAY, JPM, MO) went up more than 150% after I sold part of them around the 40% area. I made more gains and I am happy even if I sold. Even if you look at the above example, EXPE went up another 4% after my selling trade.

2) I do not plan to ever sell the stock I got for free. If I hit a 40% hiker, I get my money back and I do not need anything else.
I actually put $1000 every month on stocks, so when I hit a good deal that lets me get my $1000 back, I have the option to spend them or to buy some bonds. I got those stocks as a present of good fate, so I don’t want to sell them. Some of them pay my good dividends every year, some will enjoy great growth in the future and will some day start paying dividends too.

3) Every stock buy is result of reasoning. I consider its opportunities, I discuss it with fellow investors on this Blog, and then I buy. If I find a really good company, a baby Microsoft, I want to be part of its extraordinary growth, even if only with 40% of my initial investment. If you go through this Blog you will find many small cap growth stocks than can do well. I like TSL, a world leader in Solar Panels, or INFY and SAY, two Indian IBMs which can do really great, IRBT, maker of first home robots… I want to keep all of them… Just in case, but I could not afford to have them all if I did not pull out initial investments like I am doing. I was right, if I picked a star, I want to take advantage of my good choice. I don’t want too many regrets.

4) I am not a stock market guru. I am very uncertain of my trades and I don’t have any first hand information that is not available to everyone. This “New Free Stock Strategy” is helping me very well offsetting wrong selling decisions.

5) Before starting using this strategy, I was hardly ever able to sell stock of companies I liked. When I got a 40% hike from a company I consider great, I always wanted to hold on it forever, so I was very vulnerable when stock fell and was not able to buy other stocks I also liked.

6) I like Warren Buffet’s ability to hold many stocks for many years, but I don’t have the money he has, so I tailored for myself this little strategy that make me also a long term investor, even with much less money.

If you add to those 6 reasons the 3 stated in the post, and also the fact that this strategy has been good for me in the long run, allowing me to go trough stock-market’s bad times without too much damages, you will maybe see why I still like it and why I want to continue to stick to it.

4. Dennis Goedegebuure - April 18, 2007

I totally understand your reasons.
And besides that, I has made me think a little bid more about the strategy. Having a new innovative strategies at hand while investing in the stock market, makes it fun.

I hope all your stocks will go up, and I will be following your blog.

thanks
Dennis

5. deminvest - April 19, 2007

Thanks Dennis,

quoting an old movie you may have seen:
“I think this is the beginning of a beautiful friendship”

6. my 90 Unilever went 40% up in a year, so I sold 65 at $33.17 today. « Democratic Investments by the people for the people - May 9, 2007

[…] in UL, Unilever. trackback Today I sold 65 shares of Unilever, a great stock, because of my New Free Stock Strategy. As usual, I brought all my invested money back to my bank account and still have 25 precious UL […]

7. I sold 500 Vodafone (VOD) shares this week. « Democratic Investments by the people for the people - June 8, 2007

[…] Vodafone reached my target price: it went up 40%. According to my free stock strategy I sell enough shares top get back the total amount I had previously invested and keep remaining […]

8. Just sold 28 ACH Aluminium Corp of China shares « Democratic Investments by the people for the people - June 14, 2007

[…] to my “New free stock strategy” and to my “Sell earn and cry strategy”, this is what I […]

9. Goran B - June 15, 2007

Interesting approach even if free stock argument is flaud. You are looking at your gains in vacuum. The cost of your losses such as the bancrupcy you mentioned should be used to offset the gains you call free stock.

10. Goran B - June 15, 2007

Also for stocks you held longer, you are not really getting your original investment back in real terms but your investment minus inflation. So you are able to buy less and less with your $1000 as time goes by.

11. deminvest - June 15, 2007

Goran what you say is absolutely true.

If my purpose was to make money and spend it, I would not reach it by my free stock strategy. Actually if I didn’t have $1000 to invest every month, I wouldn’t even be able to execute my strategy.

My purposes are different:

1) I want to build a large portfolio of many different stocks not spending too much and not risking too much money.

2) I want to have fun betting on companies from all over the World and want to stick on my bets.

3) I want to buy when markets are low and sell when they are high.

4) I want to get juicy dividends.

5) I want to be able to bet on any kind of company. Sometimes even very small and risky ones.

And this is happening by my strategy.

When markets go down I’m hardly ever able to sell anything with 40% gain, so I only buy.

When finally markets go up, I get most of my money back because most stock prices do go up with markets. What is also good is that I have bought low and sold higher.

Some of my stocks are left behind, but most continue going up. Some of my free stocks are extremely valuable now.

This strategy allowed me to go almost unhurt trough the bubble. When it did burst most of my money was off the table, because the hikes before the bubble had made most of my shares free. At nice low prices after the bubble I was buying again.

I can bet my $1000 even on small risky businesses. I can afford to make mistakes, because I am putting only a little slice at stake and because many small risky companies grow fast and give me my $1000 back anyway.

Another good point is that I am very diversified, although in a clumsy way.

To obtain diversification with funds or ETFs, I would have to pay useless commissions. Even an average 1% yearly commission over the long run hurts: it takes 16% of my capital in 15 years!

The free stock strategy is designed to build a large Portfolio without spending large sums or risking too much. It seems (SO FAR!) to be working for me.

12. Just sold 8 Baidu (ticker: BIDU) shares « Democratic Investments by the people for the people - June 18, 2007

[…] to my “New free stock strategy” and to my “Sell earn and cry strategy”, this is what I […]

13. Letter to my Roomba: I hope you don’t mind that I sold 150 Irobot (ticker IRBT) shares today « Democratic Investments by the people for the people - June 20, 2007

[…] decent earnings, your stock price will maybe skyrocket, it will be good because, thanks to my my “New free stock strategy” I only sold enough shares to get my money back and I am now a happy owner of 50 free Irobot shares. […]

14. Eric Nagel - June 20, 2007

I’m glad to hear I’m not the only one that does this. My friends say it’s dumb, but I’ve also had people wish they listened to me. Yahoo and Jet Blue went back down after I sold. Sure, my “profits” went down, too, but that’s OK. The money I got when I sold them let me build up something else.

Then there’s the ones that keep going up – I can’t tell you the future, but I sold when I thought it was right. Sure, I could’ve made more money, but I used that money to buy something else, again and again and again. It’s a good way to diversify.

I just found a new blog to subscribe to 🙂

15. deminvest - June 20, 2007

Eric,

also for me it is a surprise to find another investor wanting to build a free portfolio.
It is intersting to compare our similar experiences. How long have you been investing like that?
Did you try zecco.com ? I believe it can be new keypoint for our “free stock strategy”. Cutting commissions to zero makes the strategy much more effective.

I hope we will talk more!

16. Yesterday I sold 40 Nokia (ticker NOK) « Democratic Investments by the people for the people - June 21, 2007

[…] to my “New free stock strategy” and to my “Sell earn and cry strategy”, this is what I […]

17. david - June 28, 2007

I am very intrigued by the free stock strategy and will probably start using in. One question, where do you get reliable information about which stocks to buy? There are millions of places with ‘recommendation’ but how do you know what is worthwhile?

18. How do I pick stocks? (posted to answer david’s comment) « Democratic Investments by the people for the people - June 28, 2007

[…] How do I pick stocks? (posted to answer david’s comment) June 28, 2007 Posted by deminvest in risky investments, My investing mistakes, investment strategies, investment, stocks. trackback Thanks David for forcing me to think. Funny as it is, I never asked myself this basic question until I read your comment. […]

19. deminvest - June 28, 2007

David,

your question is a very good one. I had to write a post to answer you:
https://deminvest.wordpress.com/2007/06/28/how-do-i-pick-stocks-posted-to-answer-davids-comment/

20. I sold 8 Petrochina shares yesterday: they’re 40% up since I bought them in May « Democratic Investments by the people for the people - September 25, 2007

[…] So I got all my money back. I had a nice earning of $173 and I still have 2 Petrochina shares that I got for free, that are now worth $ 364 and that I will try to keep forever. This is yet another example of the free stock strategy […]

21. GAI Global Tech Appliances up 30% in one day: sometimes the obvious happens… even on stock markets « Democratic Investments by the people for the people - October 18, 2007

[…] I hope I will cry for selling at 5.41… I do like to “Earn, Sell and Cry”, I want free stocks and will do my best to behave according to my “Free stocks strategy”. […]

22. Sold Apple today. How could I leave the party right before the girls arrived? « Democratic Investments by the people for the people - October 23, 2007

[…] free stocks strategy made me sell those 6 APL that were up 40% since I bought them in June (at . I got back all invested […]

23. Fording Canadian Coal (FDG) hit my 40% up target in such hard times! « Democratic Investments by the people for the people - February 1, 2008

[…] 2) Kept 15 FDG shares left (worth $675). They are now free stocks, thanks to my FREE STOCK STRATEGY. […]

24. Time to invest on good China ADR value stocks. Here is the complete list of all China ADR listed on Wall Street. Editor’s choice will follow « Democratic Investments by the people for the people - May 20, 2008

[…] Allumium Corporation of China. Very good company. I own 12 free ACH […]

25. I opened an Icarra portfolio management account because Google finance portfolio sucks… Guess what? Deminvest is nicely beating Nasdaq and S&P 500 « Democratic Investments by the people for the people - June 13, 2008

[…] Google Finance does not consider cash, which makes it a horrible way to measure results of my free stocks strategy. I buy a stock, wait for it to go 40% up and then resell just enough shares to get my cash back. […]

26. Amazingly one more stock hit 40% up target: (ASEI) American Science & Engineering « Democratic Investments by the people for the people - January 26, 2009

[…] I was lucky: the stock is 40% up, so according to my free stock strategy, today I sold 15 of my 20 ASEI shares at $81.79 each . I banked $1227, more than $1160 I had spent. […]

27. Why do I have an hard time suggesting a book for a novice trader? « Democratic Investments by the people for the people - June 25, 2009

[…] get  $ 1000 back every  time one of my stocks goes 40% up. That way I try to build a “Free stocks Portfolio” […]

28. Another free stock on my portfolio: the ETF on Brazil stock index that I bought in June which is 40% up today. Its name is DBXT MSCI BRAZ 1CC. « Democratic Investments by the people for the people - October 16, 2009

[…] you FREE STOCKS STRATEGY […]

29. One more free stock for me: Intercontinetal Hotel Group [IHG]) happily hit my +40% mark in 5 months! « Democratic Investments by the people for the people - December 11, 2009

[…] I am $12 richer and I do own 25  free Intercontinetal Hotel Group shares, which hopefully one day will make me rich, thanks to my free stocks strategy. […]

30. deminvest - December 11, 2009

The formula I should use to calculate how many shares I must sell to get my investment amount back once a stock is up 40% is:

number of shares I bought / 1.4

31. Just sold 9 Google shares. I now own $5000 worth of free GOOG shares « Democratic Investments by the people for the people - December 25, 2009

[…] Google shares went up and down between $300 and $600 during last tumultuos 5 years. Thanks to my free stock strategy, several times I managed to buy low and sell high accumulatating 8 free Google shares worth about […]

32. What happened to Garmin stock (GRMN) and what can I learn from that « Democratic Investments by the people for the people - February 10, 2010

[…] gone up 150% during the timespan between Aug 2006 and today. That would have triggered my my free stocks strategy and I would have made […]

33. Redhat up 47%. Time to make it a free stock « Democratic Investments by the people for the people - September 9, 2010

[…] I will keep 66 free RHAT shares thanks to my free stocks strategy […]

34. Mohammed - February 14, 2012

REGARDING —- New Free Stock Strategy: buy, when up 40% sell just enough to get money back—- Will this strategy holds good for Indian Share market… Please provide your inputs on this or guide me about how to invest in Indian Share market and which strategy should I need to follow… Thanks in advance….

deminvest - February 16, 2012

Yes. It will work if you know that you can invest the same amount every month, on a different stock, for 5 years.

Mohammed - February 17, 2012

Thanks for the update..:). How to invest at the right time(monthly basis) so that I can achieve my target of 40%. And do I need to have a diversified portfolio or instead invest in say only 2 to 3 stocks… please explain about how many(sector wise) stocks should one have in his portfolio. Thanks in advance…

35. Deminvest - February 17, 2012

You should have a diversified portfolio. Invest every month in a company that you like.

At the beginning, try to invest in the large established large CAP companies, like TATA, Infosys, Bharti Airtel …

Then as you get more expert you can bet on any company you like.

This investment strategy has to be fun and safe. Stock picking is fun and you’ll gain experience as you go on. having a portfolio that becomes wider with time will make it safe.

Pay attention to commissions. They should not exceed 3% of each trade.

Mohammed - February 17, 2012

Thank u once again for your response… You are doing a great Job… All the best to u n fellow investors…:)

Cheers,
Mohammed

36. Mohammed - February 22, 2012

Hi,

I have a query regarding your New free stock strategy– As I have observed when a stock moves 20 to 25 % up, there is a correction. So keeping this in mind can we apply your strategy in a different manner i.e.
1. Sell when the stock is 20 / 25 % up and then buy back again when the price falls.(can even buy back more according to 20 % profit gained). Now wait for 40 % and again sell.
OR
2. Sell when the stock is 20 / 25 % up and then buy back again when the price falls.Now wait for 40 % and again sell.

Please suggest….

Regards,
Mohammed

deminvest - February 23, 2012

I needed a strategy that allows me to stay on good trains.

It happened to me to pick good stocks, bad stocks and average stocks.

When I pick a good stock I want to benefit of it. For instance I made an easy bet: I bought 8 Apple at 123 the day after they presented the iPhone, spending $1000. I sold 6 at 174 getting my 1000 back. So I made 2 free shares. AAPLs are now worth $513 each. So I made 1000.

A good stock like Apple, Mercadolibre of Baiudu will continue going up. You don’t want to quit them when you’re simply up 20%, because good ones often don’t go back to allow you to reload them.

Also you should consider there is pleny of bad stocks, like Blockbuster, which lost about 99% of its value sine I bought it. If you don’t profit well of the good picks, you cant recover losses for the bad ones.

Also there is commissions if you trade many times a single stock, you will pay commissions many times.

Also I have strong doubts the the stock should go down after they have gained 20% to 25%. The stock does not know you or me. Lets say that you but IBM stock today. Then IBM goes 10% up. Then I buy it. Then it goes another 10% up. For me IBM is a 10% up company and it should go up another 10%. For you is a 20% up stock and should go down. But it is the same stock. I don’t see the reason why IBM should chose to go down when you are up 20% rather than going down when I am up 20%.

I think I will stick with 40% up… you may do better with your idea 🙂

Mohammed - February 23, 2012

Thanks for the Intel…. It will help me in taking decisions…:)

37. Mohammed - February 23, 2012

Usually when do you plan to sell your Free Stocks and on what basis…???

Cheers,
Mohammed

38. Deminvest - February 24, 2012

My plan is to never sell any free stock.

They are free, they didn’t cost me a cent, so I will try to keep them forever, hoping I will never be forced to sell them in an emergency.

Free stocks will continue paying me dividends, or will sometimes be bought out (at a premium) by other companies, or will increase their value and will be a money reserve for me and my family in case of difficult times.

All that for free 🙂

At least, that is my idea 🙂

39. Mohammed - February 27, 2012

that’s cool…:)…

40. JTS - May 27, 2012

Hi deminvest,

Ive been reading all of these blogs.. and this seems like a good plan ( I like the idea to buy and keep more and more free stocks for the future =) …

Only one question I have not seen answear to here..

Dont you ever use “Sell Stop” for stocks you buy? … for example, many suggest you always use 5% “sell stop”.. or 10% .. and just buy some other stocks, if the ones you bought are not going in the direction (up) you hoped/wanted ?

Thank you,
regard,
Jon Trausti ( from Iceland ) ..

41. deminvest - May 28, 2012

Jon,

thanks for your excellent question. You helped me to clarify to myself why I don’t use sell stops.

I decided to write a new post to better answer your question:

42. get money - February 16, 2017

hello!,I love your writing so a lot! proportion we be in contact more approximately your article on AOL?
I need an expert in this house to solve my problem. Maybe that’s you!
Having a look ahead to see you.


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