in an accounting sense. For my own example.
I bought 15 shares of a particular stock on Jan 18th 2011 at 48.69. Then I bought another ten shares at 43.90 on March 24th. Bought another 7 shares on August 5th at 33.98 and another 13 shares on Augist 11th at 29.44.
So far, I am doing great, eh. Throwing good money after bad.
Then I sold 20 shares on March 19th, 2012 at $37.58.
The question is WHICH 20 shares did I sell? By FIFO counting (First In, First Out) I have lost money.
But, as I understand it, I am not required to use FIFO. By my own record keeping, I have made $111.08 in profit and still hold 25 shares where my break even point is 48. That's the way I look at it, but I can sort of report it to the IRS how I want. Not making up numbers of course, but picking which 20 shares that I sold, cost wise.
Continuing though, I bought 25 shares on 5-3 for $32.31 bought 25 more on 5-23 for $26.1 (so far I am doing just great, but it does make the sale at 37 look very good.) Then I bought 100 on 7-9 for 26.02. Sold 75 on 7-13 for $26.40 (made $11.14 but the earnings report was coming out on the 15th and I was nervous, decided to reduce my exposure and make a little bit of profit before that report, especially since the CEO was not talking optimistic. In hindsight, it was a very bad move - sorta).
Then sold 50 more at 27.11 on July 30th. For a mere gain of $30. However, the stock went down to about 26.1 from there and I was (I swear I was) gonna buy another 100 shares. But there was a jobs report coming out the next day. Anticipating bad news, I thought the stock might go down to 25.8 or so.
But it was not bad news and instead the stock has taken off and now stands at about $34.
Big players are playing these games much more often and also have the ability to hedge their bets, like I did on July 13. Fearing bad news, I sold half my holdings just in case. If it was good news, then I would make even more on the other half, and if it was bad news, I could take the gain from the half I sold and buy again when the price went down. Same thing with the jobs report. Having a good price on Thursday before the jobs report I could have bought 5,000 shares if I was Mitt Romney (or his fund manager). If the jobs report was bad, I could buy another 5,000 at an even better price, and if the jobs report was good I would at least still make money on that first 5,000. In fact, I shoulda bought 50 shares myself and I would not be kicking myself so hard every time I check the market.
I am still out about $150 on the transactions that I have listed (not including the gains which would reduce my losses to about zero), but so far I have turn a $5,000 investment into $5,490.93. If I'd been playing with more money, I coulda turned $5,000,000 into $5, 490,930 and I fully expect to get that $150 back and then some within the next five years.
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