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A Tale of Two Trades and What I've Learned

Stocks in this article: LMT NEM

NEW YORK ( TheStreet) -- Eating a bowl of humble pie is not my favorite assignment. Remembering the lessons learned from both my profitable trades and my losing ones is an instructive exercise that's worth the time.

When TheStreet's Jim Cramer wrote to Real Money subscribers about an important goal of virtually all traders and investors, he didn't mince words: "Remember, the real goal for all people in this market is to make this business less of a guessing game about what the Fed will do and more of an investment business where we judge stocks by what companies say."

That was foremost in my mind when I went long shares of Lockheed Martin (LMT) at the end of February when shares fell below $86 each.

The financial markets were riled by the possibility that the so-called budgetary "sequester" that the federal government was embroiled in would hurt defense companies. I noticed that at $86-a-share Lockheed was trading for around 9 times both current and forward (1-year) earnings.

Lockheed's leadership held to its guidance for the company's sales for the year. What really caught my eye was its dividend. With an annual payout of $4.60 and the share price at $86 the yield-to-price was a very rewarding 5.35%. I rubbed my eyes with disbelief, checked the numbers again and went long.

In less than 3 months I was sitting on close to a 22% gain as Lockheed shares moved above $105. Knowing that bulls make money and bears makes money but pigs get slaughtered I decided to sell. The annualized rate of return for this trade was nearly 88% and that pleased me greatly.

This one-year chart illustrates how Lockheed shares behaved.

LMT Chart LMT data by YCharts

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