Turning Swing Trades Into Investments | Podcast Episode #494

0:00
Hey everybody, this is Ryan Mallory with shareplanner.com’s Swing Trade in the stock Market. And today’s episode I’m going to be answering an e-mail from a listener who is asking whether it’s OK to turn your swing trades in the long term investments were more specifically to this e-mail and the dividend plays, which is also a form of a long term investment.

0:21
Now in this particular e-mail, he he calls himself a good Texas Southern redneck. Now, I don’t actually know of any Texas Southern rednecks, so I’m just going to call him the Southern Texas redneck. And for those of you who are listening to this episode for the first time, you’re like, what the heck is he talking about? I don’t use people’s real identities. I give him fake names, typically a Florida redneck name, but in the case of this guy, he’s from Texas. So that’s kind of hard, but I’m going to go with it anyway. So the the Southern Texas redneck writes Ryan. I am a newbie but have been practicing patients and need more practice at planning.

0:58
It’s a never ending process. I have been looking at EPD. Now he asks me some questions about a stock and I’m not going to get into that here because it’s really difficult to start talking about charting processes and in a podcast where you don’t really have visuals.

1:13
Now, I know if you’re watching me on YouTube or watching the video format, I could technically throw up some charts, but I want it to be pretty simple for most of those who are driving home from work. So I’m not going to get into a a particular stock. But at the end of this e-mail, he gets into it. The question of another thing that helps my confidence on this particular trade, and this is a swing trade that he’s looking at. He gives me the parameters, the entry price, the the stop loss, the target price, but then he goes into the fact that it pays a 7% dividend and he’s saying, does do any of your swing trades turn into longer plays for dividend plays? I would love to hear your thoughts.

1:50
Thanks. A southern Texas redneck now. Yeah, I, I got a lot to say about this because I, I really don’t think the two go together very well. So the simple answer is no, I don’t inter intermix my swing trades with dividend accounts. In fact, for a long time I’ve been, I’ve been talking about on numerous episodes how I keep those in separate accounts.

2:12
So if I’m going to do a swing trade and then turn it into a dividend plate, then technically I would have to, you know, switch those shares from one account to another because it wouldn’t be a swing trade anymore. It’d be a dividend trade. I don’t want to do that.

2:27
I don’t want to mix the two. And they really don’t go together. Now I’ll also say this, I don’t like keeping, I don’t like trading stocks that have high dividends. Like if I look come across the stock and it’s paying a, a 10% dividend unless I just don’t catch it. And most of the time I will. But if I don’t catch it, I’m not probably going to play play that trade unless that the dividend ex dividend date is way far out. Because the way it works with dividends, when when a dividend hits, let’s say you’re buying this one stock at $100 a share and it has a 10% dividend.

3:03
So each quarter it’s paying out $2.50 a share. Well, when that hits, that ex dividend hits, that stock is going to automatically lose $2.50 off of its share price. So it goes from 100 down to 97.50. Now over time it’ll probably make that up if it’s a good quality dividend play and that’s what people like. But but when you’re taking money out of a stock in the form of a dividend, you’re also taking that out of the share price. Share price isn’t going to just stay the same otherwise, I mean, it’s free money.

3:36
The stock would just stay ahead if it stays, going to stay at $100, might as well do 100% dividend or 200% dividend at that point. But it no, it comes out of the share price. So where that becomes a problem is that you run into the to the issues of stop losses. If my average stop loss is let’s say 4%, let’s let’s even make it easier, let’s make it 5% and this one stock has a 10% dividend. So you’re going to get a 2 1/2% hit right out of the gate. Let’s say the first day you get into the stock, it drops from 100 down to 98.50 and then they have a $2.50 dividend that comes out the following day.

4:16
Now I’m only at 96.50 at this point or at $96. I only have a dollar to go before I get stopped out of the trade. So it’s it’s actually working against me. Now I could just adjust my trade, but if I’m trading off of the technicals and some charts will adjust for the divides, others won’t, I don’t tend to like the the charts adjusting for the dividends. I just want the raw price data. I know that may not play well with everybody and I don’t think you’re wrong if you don’t do it that way. But for me, I don’t want to see, you know, I don’t want to be stopped out because of a dividend.

4:54
That’s just me. The only ones that I’ll adjust my my stop losses for and it’s kind of obvious is a stock split. I mean, if you got a 2 to 1 stock split, it’s going to be cut in half. I mean, you’re, you’re immediately getting stopped out at that point. So you got to, you got to adjust for that. But on the dividends, it’s just a lot different. And because it’s on a regular basis, it makes no sense to try to adjust for the dividend according to my trade, because I’m, I’m following key trades or key support and resistance levels and everything that I do, trend lines and so forth. So a big paying dividend is going to take a big hit to my trade analysis.

5:29
That’s why often times why you don’t see me swing trading riots and and a lot of times I don’t. I don’t trade certain oil companies because they can have such large dividend payouts that I don’t want to get caught up and an ex dividend date that that messes me up. Now I’ve traded some that are that will have like ET for instance, has a high dividend and I can’t remember what it is offhand, but I will trade it as long as I don’t have an ex dividend coming up like within the next few weeks. Because most of the time your swing trades are going to last from like 2 to 3 weeks. I had Caterpillar just recently and that lasted well over a month. That was a fun trade. That was a good trade, but most of the time your swing trades are are going to be a little bit less than that. If I can get it to last longer, great. The longest I’m going to swing trade something is for three months because eventually the earnings are going to come out and I can’t hold through earnings.

6:16
So my Max swing trade is going to be 3 months. Now, another caveat to everything that we’re talking about here is this. Can you do both? Absolutely. I don’t have any problems. Let’s say you like stock ABC at 100 and you like it both as a swing trade. The technicals line up great. It’s a, it’s a really good trade setup. Yeah, I’d say take it. And you like the dividend, you like the payout. Let’s say it’s a 8% payout. And just because it has a higher payout doesn’t make it a better dividend play. A lot of your better dividend plays are going to be your 3-4 and 5% payouts.

6:50
A lot of times you’re 9, 10 and 15% payouts, for instance. They’re going to be your more volatile and more uncertain stocks like you. You take a look at some of these, these ones that are out there right now that that have like a 12 or a 13% dividend. There’s a good chunk of them that have seen serious declines that caused it to get that high, especially if it’s an individual stock and not like a a fund. So you have to keep that in on your radar when you’re getting enthralled by the fact that the stock has a huge or a, or a big dividend yield.

7:24
You don’t want to get caught up in that and then all of a sudden the market has a big sell off and all of a sudden you’re down 20%. That doesn’t make much sense to me. And and not all dividend trade or investments that you make are going to play out very well. I’ve I’ve had many dividend plays over the years that have not worked out well. One of the things that helps me is that if I’m holding him for years at a time and they do go down over time. Well, the dividend has buffered a lot of those losses over A5 or A6 or A7 year period. Then it becomes a little bit more tolerable to where at least you know I’m I’m getting pretty close to being break even or taking just a smaller loss rather than what the chart might be alluding to.

8:02
The other thing I do with my dividends, and I’m not trying to make this just about dividends, but since I’m on the topic, I, there’s only a few stocks that I tend to. The ones that I’m, I’m definitely big on, there’s only a few of those that I’ll actually do the DRIP with the dividend reinvestment program or every time you get a dividend, you put it right back into the stock. Most of the time, especially with the ones that are struggling, I’m not going to reinvest that into the stock, even though that that would help lower my share price in terms of an entry price. What I’m going to do is usually put those in my better names, the ones that are performing better. So with what we’ve been talking about so far and then on the current topic here or on the current point that I’m making, I’m I’m talking about whether or not I would do both.

8:50
I think it’s better to do both rather than to let a swing trade turn into a dividend play because that rarely turns out favorably. Usually there’s an emotion behind it. But if you’re going to say, hey, I like the technical set up for it and I like the long term prospects of this dividend play, I would say sure, you know that that I’ve done that many a times. I’ve done it with Citigroup. I’ve had Citigroup in like 3 different accounts. I’ve had it in just a long term investment. I’ve had in a dividend account. I’ve had it as a swing trade all at the same time. And I don’t let those plans and I have a always have a plan for each one, but I don’t let those plans trading plans for each one, you know, overlap or or get in the way of each other.

9:30
If I get stopped out on the swing trade, that doesn’t mean I’m getting stopped out on my dividend or on my long term investment play. So you can do that. I’ve done it with ET. I’ve done it with tons of them, 3M, just tons of different ones, NEE, NextEra Energy. So I don’t mind having them in separate accounts, but what I don’t want to do is take one that started as a swing trade and had no intention of making it a dividend play or whatnot. But it starts off as a swing trade, now I’m keeping it long term because that usually represents a break of your trading plan. And the reason why I say that is because why would you let a good swing trade turn into a dividend? Oftentimes it’s because you don’t want to take profits in it. You don’t want to walk away from the trade and really one of the main aspects of swing trading because of what I said earlier, you’re not really holding them longer than three months.

10:12
One of the main aspects you got to come to grips with is the fact that you have to walk away from your swing trades. Ultimately you have to because whether it’s because of earnings, like this week, I had to walk away from Caterpillar. I did not want to walk away from Caterpillar. It had been a great trade for about a month and a half, amazing trade, but I had to because I couldn’t take the risk of holding it through earnings. Now it ended up doing fine through earnings, but there’s always, no matter how good the earnings season is, there’s always plenty of examples of stocks that just get absolutely obliterated as a result of earnings. You take Amazon, Amazon was down like 9 or 10% from its earnings report. You take AMD, had been running more than doubled off of its April lows, just got slapped with a 6% down almost 10% at one point during the trading session.

11:04
So you can’t take that risk from a swing trade standpoint of holding through earnings. You have to be willing to walk away. One thing you don’t want to walk away from though is Swing Trading the Stock Market’s flagship training course. This is something I’ve worked on for four years. It’s called The Self-Made Trader. You go to shareplanner.com, click on Trading Academy and it’s going to take you to The Self-Made Trader. You’re going to go into a 14-week course. This is going to teach you everything I know about trading. I’ve poured every bit of knowledge that I can come up with, that I’ve learned, all the experiences, and I’ve poured them into this course.

11:43
It’s a 14-week comprehensive course taking you from beginning concepts of trading, swing trading and taking you into more advanced strategies over a 14-week period. It’s intense. I’m not going to sugarcoat it at all. It’s an intense course. It’s over 25 hours of training modules and lessons and you’re going to just be throttled with a ton of videos and just all sorts of really enriching course materials. So check that out, The Self-Made Trader, at shareplanner.com by clicking on Trading Academy up on the top of the screen. Now we know we have to walk away from trades eventually, but if you’re taking them into a dividend account, that’s usually a sign that you’re not willing to walk away from it.

12:29
You’re worried about it running without you. And I notice that with a lot of traders, they’re always worried about, especially with their best trades, that they start getting married to it because of how good it’s been to them. You’ve seen it over the years with Apple. So many people have made swing trades out of Apple and it’s turned out probably good for a large number of them, but now it’s starting to languish and that idea of selling Apple kind of hurts. It kind of eats at you a little bit, but you can’t let it. If you’re going to hold it for the long term, then just buy it separately in a long term account, but don’t let it transition because then you’re starting to become undisciplined. And whether or not it ultimately becomes profitable for you or not in the long term, it’s the fact that you’re making that decision to do something wrong and in this case, violate your trading plan.

13:16
And if you start violating your trading plans, then at some point it’s going to come back to bite you. Oftentimes we look at society from a moral standpoint, you know, and our behaviors, and people don’t feel bad about doing things as long as they don’t get caught. And so they don’t even think that what they did is wrong if they don’t get caught. But as soon as they get caught, they’re all of a sudden feeling pretty remorseful. You’ll see it oftentimes with police. If you get pulled over for going 90 in a 70, well, if you get away with it, you go home and don’t even think twice about it. But you get pulled over by a cop, you’re like, oh, sorry, Sir. I mean, at least this is what I do. If I know I’m wrong, I’m not going to try to tell him, hey, I did nothing wrong here, I don’t know what you’re talking about, your radar gun’s broke. If I knew I was doing it, the best thing I can do is just go ahead and admit it.

13:55
But I actually show some remorse, right. But so many times when we don’t get caught by the police, we’re not showing remorse for going too fast. It’s the same thing with trading. If you get away with it and you turn a swing trade into a long term investment or into a dividend play, you don’t think twice about it. But all of a sudden when you do that and then all of a sudden the stock gets just completely obliterated from an earnings report or because something bad comes out about the stock and now you’re down 50%, you’ll remember. Yeah, I could have taken it out for a 10% profit and I didn’t want to because earnings was coming up or I just didn’t want to follow my stop loss at the time when it pulled back just a sliver.

14:33
Yeah, I get that. There’s oftentimes I don’t want to sell my stocks, especially when it hits my stop loss. But I know that being disciplined trumps any kind of profit because that’s what results in long term gains. And so the root cause oftentimes for letting the swing trades turn into dividend plays or long term investments is rooted in greed, rooted in FOMO, the fear of missing out, not being able to just let it have a future that doesn’t include you being a shareholder. And you have to get to that point where that’s OK. And you do that by really not viewing stocks from a personal standpoint. You have to view stocks for what they are. They’re a symbol of a company that you’re trading and you don’t really have any skin invested in it except for the capital that you have during that short period of time that you’re swing trading it.

15:28
Its long term hopes and prospects don’t hinge on you holding shares of that company. So don’t get married to it. It doesn’t care that you’re a shareholder. So you shouldn’t care about having to be a long term shareholder because the moment you make it personal, that’s where you start losing your grip. That’s where you start becoming emotional and irrational as it pertains to that trade. And remember, just because it has a high dividend doesn’t necessarily mean it’s going to be a good trade. And we talked about that already and I won’t keep repeating myself, but I’m just wanting to go over some of these facts here. High dividends don’t often result in good returns down the road.

16:07
I’ve seen it more times than not, especially with equities when they start getting a high dividend. What do you think they do? They announce that they’re cutting their dividend. I saw it with 3M. I’ve seen it with Intel. I’ve seen it with a ton of them, and 3M, I think they had like the longest streak going on in the Dow of stocks that have never had a cut to their dividend, that have been increasing their dividend. Every time their dividend got pretty high, they cut their dividend. Actually, the stock went higher after they cut their dividend, but so many times though, you start cutting those dividends, the reason why people are in it, they don’t want to be in it anymore. So it causes a pretty significant sell off. So don’t get caught up too much in the fact that a high dividend necessarily means a quality dividend.

16:46
Usually it’s the exact opposite. But I have found over the years that some of the most stable dividend companies that have respectable dividend yields are probably in that 4 to 5% yield range. Sometimes you have to wait for them to come back down. Some like NEE right now trading in the 70s, it’s usually like around 2.5% I think or maybe just like 2%. But nonetheless I don’t like it at that level. I usually wait for it to dip down into the 60s or even less if I can. I know about a year, year and a half ago, NEE had a huge sell off, took it down into the 40s and I bought a position there. But in general, if the stock has perpetually had one and it’s in this complete freefall, look at it on the chart.

17:19
If it’s continuing to sell off like Walgreens for example is a great example. If it’s continuing to sell off, that’s not really a good sign. If their dividend is starting to get into like 11 to 12% range, you may want to hold off on that. So if you enjoyed this episode, I would encourage you to like and subscribe. Let me know down in the comments below. What are some of your favorite dividend stocks and have you ever taken a swing trade and turned it into a dividend or a long term investment? Sometimes when we get into a swing trade and we don’t want to take the stop loss, they automatically become long term investments and you want to avoid that too because that’s because you didn’t want to take the stop loss.

17:55
And then instead of it bouncing back up like you had hoped when you ignored the stop loss, it continues to sell off and goes further and further down. Don’t let that happen to you. Stay out of those scenarios and make sure to check out The Self-Made Trader by going to shareplanner.com as well as sending me your questions. I haven’t been getting as many questions from you guys as of late. It’s not because I’m getting less listeners. I think some of you guys just don’t think that I’ll actually use your questions on this podcast. I would encourage you to do that, encourage you to make an attempt to give me a good question. More than likely I’ll make a podcast episode out of it.

18:47
So send me your questions. I would love to hear about your struggles, go in depth. Tell me about your background. I want to hear about it. Thank you guys. 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. With your membership, you will get a seven day trial and access to my trading room, including alerts via text, e-mail and WhatsApp. So go ahead, sign up by going to shareplanner.com/tradingblock. That’s www.shareplanner.com/tradingblock and follow me on SharePlanner’s Twitter, Instagram and Facebook where I provide unique market and trading information every day.

19:25
You have any questions, please feel free to e-mail me at ryan@shareplanner.com. All the best to you and I look forward to trading with you soon.