Friday, January 13, 2012

Entering the Stock Market

Before I get into stocks, I have a little house keeping to do. I realized that I haven't posted the exact amount of money I have accumulated for quite so time, so below is an itemized list.

Old Total (w/o Linden Dollars).......................$21.17
Accumulated Linden Dollars...........................$83.65
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New Total........................................................$104.82

One hundred dollars should be enough for me to buy a few stocks and see a return on the initial investment.
 
     Ah yes, the stock market. An idea which some people love, and others hate. I see it as a potential way to made copious sums of money, but also a way to lose the farm. Therefore it deserves a lot of respect and one shouldn't just delve into it too rapidly. A smart stock trader does their research and goes beyond just reading the headlines. I've been watching a few stocks for the past few weeks, and I'm just waiting for the right time to pull the trigger on them. I've found that Urban Outfitters (URBN) is particularly interesting.
     URBN recently had a 20% decline in their stock value in one day because their CEO left the company. Investors were worried that the decline in sales and turmoil in upper management positions would affect the companies bottom line. This resulted in a massive sell off of URBN shares and a stock rating company suggesting investors sell shares. This was surprising for me and I looked back at URBN's charts to see if if ever had happened before to the company. Guess what? It had.
On March 7th, 2011 URBN saw a huge drop in their stock value much like the one that happened a few days ago! I delved deeper to find the reasoning behind the drop.


"...shares of Urban Outfitters (URBN) fell after the retailer reported weaker-than-expected fourth-quarter 2010 results, as significant markdowns were needed to clear the shelves of stagnant merchandise." (March 7th 2011) [Source]

I felt like I had seen almost this exact headline before...

 "The Company (URBN)....has seen its gross margins decline, as it tries to clear piled-up inventory by offering profit-draining discounts." (January 12th, 2012) [Source

The same story is playing out again for URBN again, but the only difference is that the stock price is lower this time. A lower stock price leaves greater room for profit, and you know I'm all about that!
The chart above shows the potential for profit (Green) had I bought URBN after the March 7th stock sell off. If the same trend plays out again I could see a return of anywhere from 10-20% on my initial investment. To ensure that I don't lose too much money on this investment, I'm going to enter the market in little increments. I've started by buying 3 shares of URBN at $25.00 on the dot. If the stock goes down lower, I will wait until it bottoms out and buy more shares. Thus averaging my losses. If the stock goes higher, I'll hold onto my shares until I reach my target return on investment (which is 20%). Lets hope the market doesn't tank in the next few weeks!

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