Whenever markets correct and sell stops get triggered, there seems to be some confusion as whether the intended sell stop kicked in at the right time.
Reader Paul was wondering about that with regards to the last Friday’s sell of BRF. He wanted to know why I waited until the fund had dropped 18% off its high before selling it.
Did I really wait too long or did Paul not look at all the numbers? Here’s his matrix on the purchases and sales:
These are Paul’s figures, but are they correct?
No, because he forgot the most important part, which is that BRF had a huge distribution of $3.575 o 12/23/10. As I have posted many times, the high price needs to be adjusted down to correctly establish a new high point; in this case the new high would be 60.16.
Just as important is the fact that distributions affect the return as well. Here’s the updated matrix:
[double click to enlarge]
As you can see, this transaction just about broke even since the capital loss was just about offset by the distribution.
BRF corrected sharply and had come off its high by about 14% before we were able to liquidate it. That happens sometimes when markets get very volatile as we saw last week.
However, it is important to remember to always adjust for dividends/distributions if they occurred during the period you owned a fund/ETF; otherwise your numbers may be way off base and won’t give you an accurate picture of what happened.
As an aside, just glancing at returns provided by your brokerage firm statements will also not give you a completed view, since distributions are not included.