Wednesday, September 3, 2014

Short-term Trade: Bought & Sold Sirius XM Canada

As much as I consider myself a long-term investor, sometimes, the temptation to make a short-term trade overwhelms me and I give in. Most books I've read caution that this behaviour is risky, and to set a limit as to how much you'll commit to such trades. Through the first nine months of 2014, I've kept the amount of capital I use for such trades at no more than 3% of my total portfolio value. I've made seven of these trades and managed to generate a return of about 27% of my capital. Furthermore, I've generated this return by trading in two stocks that I'd be perfectly happy holding for the long-term (Sirius XM Canada and Alaris Royalty Corp). 

The latest trade was buying shares in Sirius XM Canada last week, when they were priced at a bargain basement $7.55. At this price, Sirius had a dividend yield of 5.6% (that does not considering the special dividend paid earlier this year). I've analyzed Sirius's financial statements and feel that not only is the dividend sustainable given their free-cash-flow generation, it could actually be increased provided operating and capital costs are kept in line. Today, through a limit sell order, I sold my share of Sirius at $7.76. Since my short-term trades have been done in my TFSA and RRSP, there are no taxes, only $20 in total brokerage fee transaction costs. 

My short-term trades have been infrequent because there are very few Canadian companies that I follow closely that I'm not already invested in. Furthermore, I like shares in these companies to fall about 3% on no news before I'd consider investing in this manner. This short-term strategy is not something I'd recommend for cautious investors. That said, so far this year, for me, the returns have been worth the risk. 

(Disclosure: No position in Sirius XM Canada or Alaris Royalty at this time)

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