A Primer on Risk Management in Dividend PRO

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
This past week saw a sharp pull back in the U.S. stock market as well is in your Dividend PRO positions.
 
You were stopped out of your position in Navios Partners (NMM) during Tuesday’s sharp sell-off. With the market trading down five consecutive days, your other Dividend PRO positions did bounce strongly yesterday.
 
A wide range of technical and sentiment indicators I study suggest that you should remain broadly optimistic about the market. The typical correction after a run like the one you’ve seen is usually limited to 3%-8% and two to four weeks.  Based on data from sentimentrader.com, it takes the S&P 500 an average of 29 days to recover to a new 52-week high after the correction hits bottom.
 
The recent sell-off also offers me an opportunity to lay out a handful of important “rules of thumb” that I use to manage your growing portfolio of high-yield picks in Dividend PRO. Understanding these rules will help you manage your holdings more safely and profitably.
 
1) The stops I recommend in Dividend PRO are based on the stock’s own recent historical volatility. Think of this as the stock’s “personality.” If a stock tends to be volatile, it will have a wider stop. If it’s less volatile, it will have a narrower stop. This flexibility allows you to stay in more positions during corrections like the one we are experiencing.
 
2) If a stock drops below its 50-day moving average, I will move it from a BUY to a HOLD. You’ll see that I’ve done this with four of your current positions in Dividend PRO this week. Conversely, if a stock rises above its 50-day moving average, I will move it back to a BUY.
 
3) If you get stopped out of a position, and there is no fundamental change in the prospects of the company, I’ll put it on a “watch list.” I may then recommend that you re-enter this position if the stock rises above its 50-day moving average
 
This is what is what I am doing with your position in Navios Partners (NMM) this week. Because you were stopped out due to general investor panic, and not any change in the company’s prospects, I am putting NMM on our “watch list.”
 
Portfolio Update
 
Seadrill (SDRL) fell 3.29% this week. Trading below its 50-day moving average, SDRL is now a HOLD.
 
Hospitality Properties Trust (HPT) dropped 1.87%. The company announced a regular quarterly common share distribution of $0.45 per common share. This distribution will be paid to HPT’s common shareholders of record as of the close of business on April 26, 2012, and distributed on or about May 24, 2012. This Real Estate Investment Trust has been a surprisingly robust performer and remains a BUY.
 
Vanguard Natural Resources (VNR) fell 2.93% this past week. Vanguard Natural Resources has consistently increased quarterly distributions, rising from 42.5 cents in 2008 to 58.75 cents for its fourth quarter ended December 2011. Dropping below its 50-day moving average, VNR is now a HOLD.
 
Telefonica (TEF) dropped 1.6% this week. Your September $17.50 calls are now up 43%. UBS upgraded TEF to neutral this past week, in a sign that the stock may have bottomed. Trading below its 50-day moving average, and perilously close to its stop price of $15.00, Telefonica is now a HOLD.
 
Global X Super Dividend Exchange Traded Fund (SDIV) proved its mettle as the steadiest among your holdings and lost only 1.1%. As it slipped under its 50-day moving average, I have moved it to a HOLD.

 
P.S. Please join me for the Las Vegas Money Show, May 14-17, at Caesar’s Palace. To register, call 1-800/970-4355 and mention priority code 026655 or go to NicholasVardy.lasvegasmoneyshow.com. I also encourage you to sign up for my hedge fund seminar, Wednesday, May 16, 9 a.m. – 11 a.m.

 

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