Your broker offers you two types of stock transactions: buy and sell. However, from a dividend investor’s point of view a transaction can have an additional meaning.
For example, dividend investors use a strategy called cost averaging. Instead of doing a lump-sum investment you split your purchases into several tranches. The idea is that you don’t try to hit a low of the share price. Instead of ‘gambling’ you are happy with the average share price in a certain time range.
The 22 Dividends app automatically classifies your transactions into following transaction flavors:
|Open Position. The first buy transaction of a certain stock. After this transaction you have a stock position in your portfolio and are entitled to dividend payments.|
|Average Down. A buy transaction that reduces the average share price of your stock position is classified as an ‘average down’ transaction. In other words, you buy the same stock cheaper than before (in average). If the dividend stays the same your YOC increases.|
|Average Up. A buy transaction that increases the average share price of your stock position is called ‘average up’ transaction. You pay a higher share price than before and your YOC decreases (if the dividend stays the same). Averaging up is not a bad thing if you are convinced by a stock and want to build-up a position.|
|Harvest. A sell transaction that does not sell all shares of a certain stock is classified as ‘harvest’ when your position’s average share price is above the current market share price. In other words you take profit on value gain.|
|Limit Loss. A sell transaction that does not sell all shares of a certain stock is classified as ‘limit loss’ when your position’s average share price is below the current market share price. In other words you reduce the position size and lose money.|
|Close Position. A sell transaction that sells all shares of a stock is classified as ‘close position’ transaction. You might close a position if you no longer belief in a stock. After a position got closed the 22 Dividends app treats it as part of the stock’s ‘history’.|