I preach that long-term investors should have a diversified portfolio tailored to their time frame and risk tolerance until I’m blue in the face around here. If you already have a that portfolio and you are fully funding it, only then should you think about shorter-term investing. Finding a good stock trade is the mission for short-term investing.
What Is The Difference Between Trading and Investing?
First, let me just say that day trading is a different thing. If you are interested in day trading, you’ll have to read about that elsewhere.
Second, what is the difference between a stock trade and a stock investment?
The answer is your intentions. A trade is something you plan to start and complete. If you plan to hold the stock without a trigger for ending your ownership, then that is an investment.
For example, if I think XYZ Corp is trading too low at $50 per share, I might buy XYZ Corp with the idea of selling it for $60 per share. Whether or not this ends up being a good trade depends on whether I do get to sell it for $60 per share, and how long it takes for that to happen. This is a stock trade because I have an end in mind when I open the trade.
Other trades would include buying something with the intent on selling it after a certain event (the company reports earnings or announces new products), or selling after a certain amount of time (holding for 3 weeks, 3 months, 12 months, 18 months, and so on.) If you have a time frame of 5+ years, that is investing. Something between 3 and 5 years is the gray area between a long-term trade and a short-term investment.
A different example would be if I bought Pfizer at $55 per share with the intention of collecting its 2.9% dividend. The trigger to sell in this case is not predetermined. That is a stock investment. Just because you are investing in a stock does not mean that you would never sell, it just means that the trigger to sell is not currently set in your mind. As a successful investor you would of course continue to monitor your stock investments and make sure they continue to meet your investing criteria.
What Makes a Good Stock Trade
A good stock trade is different for everyone depending upon their needs, but the components are always the same. The stock should be trading at a place that doesn’t make sense based upon what you know, or moving in a direction that doesn’t make sense, or that you know will be temporary. How do you know these things? Experience and research.
This article won’t teach you how to analyze stocks, that is a much bigger project, but here is a potentially good trade that I’m looking at. Obviously, unless you are trading larger amounts you need to be working with one of the zero brokerage fees brokers or even one of the free stock apps to execute your trades.
I am not a licensed advisor or broker. This is not an invitation or recommendation to buy or sell securities. This article is for informational purposes only. Finance Gourmet, the author, and ArcticLlama, LLC assume no responsibility for you acting on this information in any way. This article will not be regularly updated so there is no guarantee the information will be accurate when you read this article.
Here is the kind of thing that MIGHT make a good trade.
Vail Resorts (MTN) is trading flat over the last six months. Six months ago was July before anyone knew that there would be almost no snow in Colorado where Vail’s flagship resort, and several others are located, pretty much wiping out much of the early season. Now, Vail makes a big deal about how much of its revenue is from season passes versus lift tickets (something like 60/40) so they didn’t necessarily lose as money there, but they almost certainly came in short on things like parking, lodging, food, and so on.
When Vail reported results in December for Q1 2022 (they are on a fiscal year calendar) they reported losses that weren’t quite as bad as last year, but they were still losses. Oh, and the resorts it just bought are also losing money.
The catch is that those earnings were for the fall, not the heart of ski season. Those numbers were not in there yet. Since then, Covid came back with the whole omicron variant thing, and there was a much later and smaller start to the ski season. Chances are that the start of Q2 will not be good.
The kicker is that now that the snow is here, skier complaints are through the roof. The already fragile system of ski area employees who are unable to afford to live near ski areas is breaking down between sick (Covid) workers, and workers who can make more money elsewhere in a “job shortage” market. Add to that something that Vail brags about, “a 20% cut in season pass prices,” and just buying the pass rather than putting up with a ski area job to get a free pass, and Vail is coming up short in workers. Skiers report long lift lines, closed terrain, and so on. All the kinds of things that lead to local skiers postponing or trimming visits, along with their typical spending.
If based on some of these factors and your own research you think that maybe Vail shouldn’t be trading flat over the last six months, and up over the last year…
This guy is thinking like me.
How To Make a Good Trade
OK. If this is a trade, when need to figure out our end. My thought process is that when the sucky numbers brought about by crummy snow, Covid, and being short on ski area workers comes out, the stock will fall. That makes my end either the reporting of Q2 results or the reporting of Q3 results.
Q2 includes all ski area data through January 31, 2022. The company reported Q2 2021 on March 11, so they would likely report somewhere in that timeframe for 2022.
Here is the catch. Vail is a very big company with a lot of cash on hand. There are plenty of ways the company can “massage” their numbers to smooth out the quarter. Whether they can do enough, or if they will are things that are variables I can’t know. The biggest catch is that I could be wrong. Maybe terrible snow pushed everyone on to the mountains in December and January. Maybe less employees lowered overall costs and while skiers complained maybe they spent the same amount of money by just waiting in longer restaurant lines and staying in lodging as a way to beat the crowds onto the mountain.
So, is Vail stock a good stock to buy for a trade? Would a counter position if Vail stock is a good investment the long term be a solid move?
I could have also gone with, “Do ya feel lucky? Well do ya? Punk?” from Dirty Harry.
An intriguing idea that requires more research and thought would be a short-term trade to the downside and using the profits to pick up the stock as a long-term investment. If it’s paying 1% here, it might be paying a lot close to 2% after a downturn… hmmmm….
Then, there is always the various investing apps that might get you into some stock. I think I own one or two shares of Vail thanks to Grifin.
From here, you have to do your research, check your convictions, and then find your end point. In this case, buying some Puts might be the way to go. You could get March puts that will likely expire after Vail reports earnings. You could get April puts to be safe. You could also just use a regular short and limit your exposure with some well-placed stops. Then, calculate your expected profit and compare it to your potential risk. If you like the way it looks, you found a potentially good trade. If not, do not trade.
The reason mutual funds and hedge funds have so much trouble beating the market is that they have to keep money working no matter the conditions. You don’t. Enjoy your money market. Grab some CDs. Heck fire up a boring old dividend investment and bide your time. That’s how you come out ahead in investing.
Good luck.
Author and Disclaimer
By Brian Nelson – Brian is a former Certified Financial Planner and financial advisor. He writes for the Finance Gourmet and other financial publications. The material provided on this website is for informational use only and is not intended for financial or investment advice. At the time of publication, Mr. Nelson did not own any securities mentioned above, however, that may change at any time without notice. ArcticLlama, LLC, FinanceGourmet.com, and Brian Nelson, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.