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Hit my up 40% mark on CEO CNOOC LIMITED. Sold 5 to keep 2 free shares October 8, 2010

Posted by deminvest in investment.
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Yet another stocks switched to the free side!

One year ago, in October 13, 2009 I spent $1,028.37 to get 7 CEO shares ($146.13 each).
On 10/06/2010  I sold 5 CEO shares at $209.46. I made $ 1,040 and I am now an happy owner of 2 free CEO  shares that are now worth $$418, that I will try to keep and that hopefully will continue to go up.

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1. James Paige - December 3, 2010

This is not really a comment on this post. But I cant find your email. I am sorta intrigued by your idea of “free stock”. When a stock goes up and you sell most of you holdings and get your original “Return on Investment” back so you have “free” shares what about you commission charges and taxes.?

2. Deminvest - December 4, 2010

James,

I do calculate commissions and get them back when I sell to get my originally invested money back.

This taught me the fundamental rule of doing whatever I can to keep commissions low.

I did most trades on zecco.com , which offered ZEroCostCOmmissions. They eventually introduced a commission of $4 into each trade. When I sell, I make a $8 more to offset two trades. You may have noticed that on this trade I made extra $12 of cash to offset the $8 of two transactions.

I don’t calculate capital gain taxes and this may be my mistake. Maximum capital gain taxes are 15% on earnings. They are not calculated on my free stock, that I’ll try never to sell. They are only calculated on shares that I sell, not on my free shares (🙂 )

On this trade capital gains taxes were calculated on the 5 shares I bought at $146 and sold at $ 209. My gain on those was 5 x (209 – 146) = $315. 15% on that makes $47 capital gain taxes.

Maybe I should also add those $47 to my equation. I didn’t do so far for several reasons:

1) I am quite lazy
2) I consider paying taxes on earnings a fact of life. So I don’t really factor that in on every paycheck or earning I make.
3) Those capital gain taxes are fully offset by dividends.

Point 3) is a bit complicated.

This stock, CEO, pays $ 4.87 dividend. I had 7 for a year. I got $34 dividend during the year I kept them. Taxes on dividends may have been $4. So I made $ 30 dividends only on this single stock

What makes me comfortable is overall dividends vs capital gain taxes. I buy one stock a month for $1000. If I am extremely lucky to pick great stocks that all go go up 40% during the same year I pay capital gain taxes on max 12 trades. So $600 is max tax I can pay in a perfect year.
I have been using this free stocks technique for about 10 years. Now I own more than 120 different stocks. Most of them pay dividends and they continue doing so. For instance, my free 2 CEO shares will pay $ 10 dividend this year. And will continue paying it all the years of my life, unless COOP goes broke or I am forced to sell for life circumstances. Usually companies increase their dividends in time.
The whole picture is few yearly trades, very little taxes and very many stocks that pay dividends.

In my experience what is the best of my free stocks strategy is the forced correct timing.

When markets go down I can hardly sell any stock, so I have to buy buy buy… the deepest the fall, the cheapest I buy. When markets rebound, my stocks start meeting their targets and I have to sell sell sell…

Basically this way of investing allows me to do what the perfect investor should do:

BUY CHEAP AND SELL HIGH.


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