The key to any investment strategy is also having an exit plan. GM traded up nearly 40% in valuation from the low last fall to the high last spring before turning back down last summer. Any variety of exit plans could have helped you exit with decent profits on the way up or on the way back down.
Is there a reason the MAGIC 85% of BOOK VALUE LEVEL Has NAILED the bottom the last 3 times? I think so. It is because VALUE INVESTORS utilize these ratios to determine entry levels. Why is 0.85 x's book value important? Because that is the level that gives value investors a margin of safety to buy $1 of assets for 85 cents. It is a pattern of valuation that we can find using TradingView fundamentals and is really the same as technical fundamentals, or the patterns in and valuation.
Here's wishing us an entry into GM at 27.65 or lower to get this position into the portfolio.
Another way to accomplish this is to sell $30-strike puts going out 3-6 months where you collect at least $2.35 in premium, which will net you an entry price of $27.65 as long as GM is below $30 at expiration. $30 is the price you will buy the stock, less the premium that you collect on selling the put options, if GM is below $30 at expiration. That is a risk, that you miss any returns beyond $30.
GM - it's on my shopping list - because of the healthy it has generated in the last 4 quarters: 1.29, 0.86, 1.19, 0.97 for a whopping $4.31 in or 15% yield ($4.31/$28.74 last = 14.99%)
Fears of a recession and rate hikes by the Fed have investors unnerved, but you have a large margin of safety when you are investing with returns that are 15%, which is a far cry from Treasury bonds, notes and bills which are yielding a small fraction of that.
$28.71 last GM 11:19AM EST 9/29/2015
30.00 strike, January 15, 2016 puts are $2.90, providing an entry price of $27.10
31.00 strike, January 15, 2016 puts are $3.50, providing an entry price of $27.50.
I prefer the $31 strike, because I'd rather take in more premium and profit up to the $31 level.