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

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 :-).

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.