Buying Stocks Before Ex Dividend Date | Podcast Episode #251

0:07
Hey, I’m Ryan Mallory, and this is my swing trading the stock market podcast. I’m here to teach you how to trade in a complex, ever changing world of finance. Learn what it means to trade profitably and consistently, managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

0:25
You can succeed at the stock market, and I’m ready to show you how. Hey, everybody, this is Ryan Mallory with Swing Trade in the stock market, and today’s episode comes from a guy who wants to be called Benji. Now, he says that I’ve never used Benji before, but I have.

0:41
He’s also got some questions about buying a stock before the ex-dividend date. Now, if you guys don’t know what ex-dividend date is, that’s where they take the price of the dividend out of the stock. You don’t necessarily receive the money on that day. That’s usually a little bit further down the road, but you qualify to receive the dividend on that particular date.

0:59
He has a question about that and he also has a question about trading a stock post earnings. Now, you guys know that I don’t hold stocks through earnings, so his question revolves around getting in following a good earnings report. So let’s go ahead and get into Benji’s email.

1:15
And he writes with The subject, thanks for all the fish. My title is in reference to the Hitchhiker’s Guide to the Galaxy, of course, but in reality, I should say thanks for teaching us how to fish because your podcast and Patreon materials that you have provided at swingtradingthestockmarket.com have been very valuable to me in helping me learn how to think for myself in the stock market.

1:37
And for those who don’t know what swingtradingthestockmarket.com is that he’s referencing. It’s all of my stock market research each and every day that you can get. That’s going to include my weekly watch lists, my daily list of trade setups that I’m following.

1:52
It’s also including updates on all the fang stocks each week, plus updates on all the indices and much, much more. I’m sorry, I had to plug that in there. I mean, I usually don’t do that in the beginning, but come on, he set me up for it. He goes on the right, quick introduction, I am quite new to trading. Only been doing it a couple of months.

2:08
I have a full-time job, but some flexibility to watch the markets during the day. I have been devouring books and podcasts on the stock market and trading strategies and of all the resources, yours have been some of the most helpful and down to earth. I picked a terrible time to start, I guess, but that’s OK because it has helped me keep my expectations low and I have had fun in the process.

2:30
I am using a comparatively small account, just a few $1000 and careful with the risk management and have had some good trades and some bad trades, but I’m pretty much just break even still overall. I hope to eventually change that. I have two questions about specific strategies.

2:46
Number one, what are your thoughts about what I will call dividend hopping, jumping into a stock before X dividend date and then jumping back out a day or two afterwards? Obviously, the overall trend of the stock needs to be upward or at least flat for this to work, but this is something that I’ve been curious about. I haven’t really tried it, but have been keeping an eye on the potentials and it seems like a. way to sweeten a swing trade with some dividend icing.

3:10
Number 2, do you ever ride the post earnings wave? I read somewhere that when there is news like an earnings report, it takes an average of 3 days for the stock to move to a new price range. Obviously, that’s not always the case, but I’ve observed that in some cases and actually several of my more profitable trades have been with this strategy.

3:29
For example, if an earnings report comes out immediately after the market closed and there’s a clear. Movement up or down, I may take a position during after hours trading and write it out for a day or two. Thanks again, and I also want to mention I read reminiscences of a stock operator at your suggestion, and it was a good, fascinating read and helpful at just as you said.

3:48
I was skeptical at first with the book being nearly 100 years old, but it’s amazing how human nature never really changes. Good stuff. You can call me Benji if to see what makes it onto your podcast, which you did. Haven’t heard you use that name before, but I did. Sincerely, Benji.

4:05
All right, so we got a lot to unpack there. But first, before we get to doing that, what am I gonna drink? I haven’t done a Canadian whiskey in a long time, but I found this one Canadian LTD. I just got a sample of it because I don’t have a lot of faith in Canadian whiskey, much less wanting to buy an entire bottle of one.

4:20
But Canadian LTD, it’s 40% alcohol, which makes it 80% proof. That’s pretty much all the information I have on this thing. I don’t know if some of the Canadians listening have had this thing before, but, or do you guys just go and drink American bourbon, which we don’t call it American bourbon, we actually just call it bourbon because it can only be made in America if it’s bourbon.

4:39
And that was a little bit of a flex there, I think. No. Canadian LTD. I mean, the color on it looks like piss water, right? I mean, it looks really bad. I’m not really fond of the color. The smell comes across a little sweet, but the flavor, it’s not downright awful like I was expecting, but it’s not good either.

4:58
I mean, scale of 1 to 10, I’ll just be honest. This is like a 29, 29. I don’t know if I’ve had any other 2.9s in the past, but this isn’t very good. I’ve rarely ever scored, if ever, a Canadian whiskey high, so. This one’s no different. Canadian LTD, gosh, it makes you wanna like, feel like you got phlegm stuck in your throat and you just need to hack it up after you have a sip of this stuff.

5:19
If I hadn’t given the score out already, I would have given it a lower score knowing that little sensation, man. That is not feel good. It’s almost like You gotta hack something up, like you got a big old ball of cat hair or something stuck in your throat. Yeah, I’ll stick with the 29. It’s pretty low anyways.

5:35
All right, so back to Benji. He talked about how he started off at a horrible time. I actually think he’s starting in a very, very good time as a trader. This is a good experience to get one of these big sell-offs under your belt right out of the gate. I wish I would have experienced what it was like to go through a sell-off early on because it would have probably changed my expectations for the stock market when I had first started off trading when I was 11 years old during the dot-com bubble when it just went straight up for practically 10 years.

6:03
And then you had the dot-com bubble crash and I just was like. What is going on. It’s like they’re stealing my money and you see that a lot now on message boards. You see people wanting to always blame their losses on a rigged market on the market makers stealing their shares or their synthetic shares or you see that a lot with the WSB stocks that people are trading, particularly like GameStop.

6:22
I mean, if you look at the chart, I mean, every one of these pops get lesser and lesser and lesser. You think people would realize, you know what, this stock is losing its momentum, yet people keep on wanting to buy into this thing thinking they’re gonna stick it to some boogeyman and You know, at this point, there’s so many other good trading opportunities out there, but everybody wants to try to hit this home run because it did hit a home run before they’re trying to hit a home run again thinking that somehow they’re going to change society.

6:48
I mean, I don’t know, maybe these guys just got too many participation trophies when they were growing up and they think that all of a sudden that society owes them this great deal of profit and a major windfall on some stock that’s going out of business. Does it make sense to you? It doesn’t to me, but that’s what we have a lot of people doing right now, so.

7:06
He talks about trading in a horrible time. Again, I think it’s a great time that he started trading. He’s he’s gonna learn a lot about what it means and why those stop losses are so necessary because it protects you in the long run. And he says that he’s just break even. He’s had some good trades and some bad trades, and he almost like shrugged his shoulders at, I’m just break even overall, but he should be very happy about that.

7:27
I mean, he’s jumping in in the midst of a firestorm and he’s still break even. I mean, he’s learning on the flight. He’s only been trading for a few months. In these few months, it’s just been absolutely crazy to be trading in. And yet he’s hanging in there. So kudos to Benji, man.

7:43
I mean, yeah, you picked one heck of a time to start. I mean, you could have started any time in the last 13 years and you would have probably been in a much better market than now. But hey, you know, better late than never and you’re learning some. Incredible experiences along the way. So I’m gonna read his first question over again and then I’m gonna attack it a little bit.

8:02
He says, what are your thoughts about what I call dividend hopping, jumping into a stock before it’s ex-dividend date and then jumping back out of it a day or two afterwards? Obviously, the trend of the stock needs to be moving upward or at least flat for this to work, but it’s something I’ve been curious about. I haven’t tried it yet, but I’ve been keeping an eye on the potentials, and it seems like a potential way to sweeten a swing trade with some dividend icing.

8:21
Uh, I don’t see any point in this strategy. And here’s the reason why I’m not trying to like rain on this dude’s parade, but we’ll make it in simple terms. Let’s say stock ABC trading at $100 issues a $1 dividend every quarter, right? So if you got in like right at the close, the next day’s XDivy, you’re in line to receive the dollar.

8:41
But the thing is is that XDivy date, it’s going to drop by the amount of that dividend. So if it’s a $1 payout, the next day it’s gonna be trading at $99. That’s gonna be the new basis for where it opens up at. So you’re really not gaining anything by doing that.

8:57
Yes, dividend stocks are great to trade in. Over the long term, you know, the stock keeps going up, they pay some dividends along the way and it keeps going up, up, up and up. But they’re really more for like long-term investments if you’re going after the dividends, not so much like a short-term trade where somehow you’re just going to keep the same share price and get a dividend as well, because when you have a dollar payout, that’s gonna be reflected equally in the share price.

9:21
Now, that doesn’t mean that, OK, if you buy ABC stock the day before X dividate and The next day, OK, it should be opening up, you know, around $99 if there’s no other factors to be considered, but let’s say in this case, markets gapping up 5%, right?

9:38
Well, yeah, then you’re probably gonna be looking at an open at like $103 or 1004, but it’s gonna still be taken into account that dollar dividend that. Was subtracted from the price of the stock. So trying to build a strategy around that, trust me, people have thought about that before, you know, I’ve received the question before, but I’ve received it enough to where I felt like it was worth answering.

9:59
So no, I don’t see there being like any benefit to doing so now, one could say too is like well Ryan. Have you seen some of these divvy stocks over the past 5 months while the market’s sinking when they issued their divvy, they keep going right back up. And that’s true, they have been. They’ve held up really well, but that’s because people are afraid of this market, so they’re going towards a lot of these dividend stocks like Altria and Chevron, and a lot of the energy stocks that are paying out some hefty dividends, so people are getting into those.

10:28
And they think that they actually have a strategy on their hand when they’re really just benefiting from overall market conditions that are more favorable towards dividend stocks and energy plays that pay dividends. Again, I like dividend stocks. I have a dividend portfolio, but I don’t base it off of, you know, getting in the day before XDivy, hoping to make some kind of big payout.

10:45
Now, the second question, do you ever ride the post earnings wave? I read somewhere when there is news like an earnings report, it takes an average of 3 days for the stock to move to a new price range. Obviously, that’s not always the case, but I’ve observed that in some cases and actually had several of my profitable trades come from this strategy.

11:02
So he also buys sometimes after hours if there’s a clear movement up or down, he’ll take a position and write it out for a day or two. Not a huge fan of this, especially on stocks that got much lower from our earnings report, you know, let’s say they have bad earnings or just the market reacted differently to.

11:18
A good earnings report and that does happen at times as well. Let’s say the stock drops 10, 15%. Some people want to automatically buy it. I like to give stocks before I would ever consider a stock that just had a bad earnings report. I’d have to have it shows some signs of basing like maybe like 4 or 5 days just to show a good basing.

11:35
It’s not a hard number on it, but I need to see that it’s not gonna just continue to the downside. You know, if there’s an earnings report where there’s a big strong reaction to the upside, do you go chasing it? Well, the problem with chasing those, if it’s a really strong earnings reaction, the stocks rallying like mad, there’s probably not gonna be a good reward risk ratio.

11:53
So most of those I’m not going to chase after either because how am I going to manage the risk on it if it’s gapping up 15% from our earnings report? Where am I putting the stop loss at? And so there’s the problem with that. Sure, it may rally for a few days, but I don’t think there’s a hard rule to that that says, OK, stock does really well, you can rest assured it’s going to rally for a few days.

12:14
Yes, there will be times where it does and you’ll be like, man, I’m so glad I got into it. Just trying to focus a trading strategy around that solely. I’m not sure that’s the best course of action to take. I mean, you take Google on February 2nd. It reported earnings. In fact, it announced a stock split. Every everybody’s like, holy cow, this thing’s gonna go to the moon, right?

12:30
They’re gonna have a stock split. The stock’s gonna love it, investors are gonna love it. It’s just keep going up higher and higher and higher until they actually split the stock, and then they’re gonna get even more buyers, and it’s gonna be trading, you know, on the moon or orbiting Mars. And what did it do? It had a huge pop up to over 3000 and now it’s trading at 2150 and it’s only had like a minor rally back in March 14th off of its lows, and then it rallied to the end of March and then it’s been selling off ever since.

12:55
So, Google is a perfect example of how Sometimes stocks just don’t like to rally after that initial pop. In fact, it’ll give it all back. So a lot of it’s going to depend on market conditions, how the market’s trading like right now, that would be a really tough trade to take play momentum plays on earnings when they’re surprising to the upside.

13:17
And then you’re trying to make that play when the market’s selling off. You just don’t want to do that. Another good example is the Nvidia earnings that just came out recently. Stocks sold off hard after hours down like 7 or 8%, and now it pops 5% into the green. So trying to chase it to the downside and now.

13:33
After hours, that’s going to leave you with a nasty loss, especially if it gets higher the next morning, even though it might have been selling off all afternoon long, the previous day. So lots of pitfalls trading the earnings. To me, I don’t feel like that it’s necessary as traders that we have to be in in all the different trades and all the.

13:50
Different kind of action that the market offers up to us. Instead, oftentimes the best course of action is not doing anything at all and just waiting for the price action to come to you rather than trying to force it on the market because chasing after earnings or trying to play the Xivity, it’s kind of especially like trying to put the ex dividend thing.

14:07
It doesn’t really work. I mean, yes, there’s gonna be times where a stock will rally and make up the difference for the dividend, the, the exact same day from. The X dividate, but if it does, it’s likely because there was a reason for the stock to rally and not because it wasn’t taken into account the dividend.

14:25
In any case, to wrap up, do we want to do some ex-dividend chasing, buying into it the day before and selling a couple of days afterwards? No, we don’t want to do that. That’s not really a strategy I think plays well for a profitable trader in the long term.

14:41
And then the second question is, is playing the earnings wave, trying to chase the momentum to the upside, you gotta realize that there’s pitfalls like what we talked about with Nvidia and like what we talked about with Google is that there’s also hard reversals from earnings. In fact, earnings is susceptible to some of the craziest reversals you’ll ever see.

14:57
So keep that in mind as well. If you enjoyed this podcast and encourage you to leave me a 5 star review on Apple or Amazon, could really use that. They do help out the podcast and to continue to reach a broader audience. Also, make sure that you are subscribed to swingtradingthestockmarket.com.

15:15
You’re gonna get all my stock market research each and every day, so don’t want to miss out on that. Keep sending me your questions, ryan@shareplanner.com. Thank you guys, and God bless. Thanks for listening to my podcast Swing Trading the stock market. I’d like to encourage you to join me in the SharePlanner trading block where I navigate the stock market each day with traders from around the world.

15:35
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15:57
If you have any questions, please feel free to email me at ryan@haplanner.com. All the best to you and I look forward to trading with you soon.