Monday, January 4, 2010

Update on Merck

Back in November, I wrote a post about buying Merck. I made this decision based on a stock analysis service called MarketClub. This is part of a website called (pronounced "I know") where I can research stocks, futures, or forex products. I recently used their Trade Triangle analysis to help me decide on buying Merck & Co (NYSE: MRK).

At the time of my post, Merck & Co (NYSE: MRK) was trading around $34, but it has increased significantly since my previous post. I had actually bought the stock about a month earlier than my post. Although I usually don't disclose the full details of my stock transaction on my blog, I thought that it would be instructive to share the details of this trade. For my own reference, this post will serve as a record of a trade that I got right.

Here is the summary of my trade: On 10/12/09, I bought 300 shares of MRK at 32.99. On 12/24/09, I sold 300 shares of MRK at 36.76. As I mentioned, the opening transaction was based on technical analysis done using Trade Triangles from MarketClub portion of the website. The closing transaction is due to a stop order that I placed after the stock started to move up. The idea behind a stop order is to protect gains from a potential decline in the stock price. However, volatility will sometimes cause one to be "stopped out" prematurely. That is one danger of placing a stop order.

On a percentage basis, this trade was not as successful as my investment in Bare Escentuals (NASDAQ: BARE ). Nevertheless, it still represents an 11.4% gain over the period. I don't usually compare my trades with the S&P 500 index, but I know that a lot of investors consider that to be an important measure of success. For the record, the S&P rose 4.6% over same period. The difference between my return and the S&P is 6.8%, and is referred to by some analysis as "alpha". There are entire websites that exist for the sole purpose of seeking positive alpha.

From a personal standpoint, I am always happy to rack up a good gain regardless of whether it generates a positive alpha. I also can't argue with success, and while I was at first very skeptical of technical analysis tools like Trade Triangles, I have had good success with, so I intend to continue using this technique in my investing.


No comments: