Dean Foods spinoff
Author: LenMoz
Creation Date: 5/24/2013 10:49 AM
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LenMoz

#1
Dean Foods (symbol DF) spun off a subsidiary, and as a result, share holders were given a proportion of class A and class B shares of Whitewave Foods, WWAV, and WWAV.B respectively. The multipliers are 0.25544448 and 0.36380189, respectively.

See article at https://eresearch.fidelity.com/eresearch/evaluate/news/basicNewsStory.jhtml?symbols=DF&days=&category=&sb=&st=&san=&sc=&storyid=201305201602DOWJONESREALTIME004948

I have 282 shares of DF in my sandbox S&P 500 NN Trader.
Per the article, and my calculation, I would have received 72 shares of WWAV and 102 shares of WWAV.B. Current market value of the Whitewave shares is $3136. WWAV and WWAV.B are not supported symbols in WealthSignals.

My strategy will not know of the Whitewave shares. How will this be handled in WealthSignals? I've currently taken a 3% hit. Since this is overnight trading, my preference would be to "sell" the Whitewave shares at tomorrow's open. I guess the WealthSignals team would have to do this manually.

If this were not in the sandbox, would I advise my subscribers to sell the Whitewave immediately, do you think?

Another side effect is that a Subscriber would currently see my DF position as having a substantial loss, when it actually has a gain.

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Cone

#2
Hi Len. We'll make an adjustment for this action this weekend so that it doesn't adversely affect the WS systems that held DF into the spinoff. It will likely involve getting cash for the WWAV shares and a basis adjustment for the DF shares. After we study it more we'll get back to you here. As for subscribers, this is what the system forum and bulk messaging is for - communication for special circumstances.
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LenMoz

#3
Thanks for the response. It sounds good.

As I expected, my strategy generated an alert to close the DF position. The stock really did drop from $20.41 to $10.10 in the Fidelity data. It's not a stock split so back prices won't be adjusted, I'm guessing. And while my strategy exited it today, as a "stop loss", it may buy it again soon because it looks cheap (the neural network value spiked on the drop). DF's chart will have this disconnect, which looks like stock behavior, but really isn't.

I wonder how the financial houses handle this?

BTW, I don't plan to post my alerts to WealthSignals until you've had a chance to make the correction you mentioned, to not muddy the waters.

Len
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Cone

#4
So that you don't have that false "cliff" in DF's data history, you can apply a "split" manually. The only drawback that I can think of is that the market cap will be about half what it actually was and the dividend (and yield) will be inflated (if DF paid dividends), but if you're not looking at those, then no matter.

Since DF closed at 20.41 and opened at 9.82, you could smooth out the data by applying a 20.41 / 9.82 split on 5/23/2013. Since you can't enter decimals, enter "2078411 for 1000000" for the split.
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LenMoz

#5
OK, Took a while to find it (had to read the manual! Right-click the chart, second from the bottom, for others.)

It fixes the chart and my strategy is fooled, but it does kind of distort the symbol data, OHLC vs. Fundamental. That's where the cliff has been moved.

And there's no trace that it's been done, that I've found.

Each WLP user may have to decide what works for them.
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LenMoz

#6
Can I stage "Sells" for the unsupported symbols, WWAV and WWAV.B, that you've added to my "S&P 500 NN Trader" strategy?
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Cone

#7
QUOTE:
And there's no trace that it's been done, that I've found.
It's somewhere in the header data of the WL data file. Note that you can easily undo the operation by refreshing the data.

QUOTE:
Can I stage "Sells" for the unsupported symbols, WWAV and WWAV.B, that you've added to my "S&P 500 NN Trader" strategy?
Yes you can. As you can see, we've opted to do what is closest to real life. Exiting WealthSignals positions is always supported. For example, DF itself has been replaced by KSU in the S&P 500, but exit trades for DF are still supported.
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LenMoz

#8
Problem?

"Sells" for WWAV and WWAV.B were placed, at the market. They showed during the 15-minute countdown, but they've disappeared now. And they aren't in the Subscriber's email. See attachment. I need to sell them to have funds for the other buy orders.

I would've wanted Subscribers to sell as well (though this is Sandbox now).

Len

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Aleksey

#9
Sorry for the inconvenience (a slight bug). Signals for WWAV/WWAV.B have been added, an email has been sent.
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LenMoz

#10
The WLS orders seem to have gone through, , except see the note below. I did get an email with the WWAV symbols. Thanks!

Well, there is one thing I just found. The Fidelity site seems to have WWAV/B as the B share symbol, with a "/", not WWAV.B. In fact, when I enter WWAV.B in their quotes dialogue, it returns WWAV, the A shares, dropping the ".B" completely. To further check, in my live Fidelity account, I started an order to buy WWAV.B. After I entered the symbol, I got a warning, "The security WWAV.B you entered is traded using the symbol WWAV. We have entered the correct symbol for you.", and the symbol had changed to WWAV, the "A" shares. I'm thinking you'll need to change the WWAV.B order to an order for WWAV/B, presuming WLS uses Fidelity for pricing. This is a Fidelity quirk. Google Finance carries it as WWAV.B.

Latest Update (12:07 p.m.), I called Fidelity to let them know and now things seem to be correcting. I'm thinking the WWAV.B order may work just fine by tomorrow.

Sorry for the inconvenience. Details, details.
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Cone

#11
We were trying to avoid B shares in this first phase of WealthSignals, and that's why BRK/B (or BRK.B or BRK^B, or BRK-B, etc.) isn't included in the List of Symbols (also BF.B...). Fidelity uses two different symbology sets (don't ask me why) and our realtime data provider uses another. Nonetheless, we were somewhat forced into this, and for now a subscriber would have to make an adjustment manually for their broker, if required.
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LenMoz

#12
Thanks for the explanation.

The only thing I don't like is that in my strategy all the basis stayed with DF. The sale of WWAV and WWAV.B will show all proceeds as gain. When the DF is sold, it will likely show a (undeserved, in my opinion) loss. I have a spreadsheet that shows a possible spread of the basis across all three symbols, which would result in each having the same gain (as of Friday's close). I've attached an image, spreadsheet not allowed to attach here.

Since this is a Sandbox strategy and the overall dollars are correct, its not a big deal, but you may want to consider it for the future.

Len
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Cone

#13
There's no single right answer to handle this, but we have an idea for an adjustment that would make the position metrics work better. Before I explain it, how would you suggest to handle it?

Hint: think of how you'd handle it in a Wealth-Lab simulation.
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LenMoz

#14
In the Dean Foods case, I would simply take the original basis and apportion it across DF, WWAV, and WWAV.B in the ratio of the position values as of Friday's close, the day this action occurred. Done this way, all three positions will have the same percentage gain as of Friday's close.

Doing the math: S&P NN Trader has 282 shares of DF(@$10.10=$2,848.20), 72 shares of WWAV (@$18.50=$1,332.00) and 102 shares of WWAV.B (@$17.84=$1,819.68). The total value of the three positions is $5,999.88 as of Fridays close. A spreadsheet tells me that 47.471% of the original basis should be allocated to DF, 22.2% to WWAV, and 30.329% to WWAV.B.

Interestingly, and to your "Hint", the amount allocated to DF above, 47.471%, is reasonably close to the split ratio given earlier in this thread, "2078411 for 1000000". Dividing 1000000 by 2078411 gives 48.114%, reasonably close to DF's 47.471% allocation in the paragraph above.

My preference is as stated in paragraph two, restating, "all three positions will have the same percentage gain as of Friday's close."

Len
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LenMoz

#15
We don't seem to be out of the woods yet on the WWAV and WWAV.B at-the-market sells. Neither has executed. I can understand the WWAV.B, which shows virtually no activity (600 traded, no bid or ask volume as I write this), but the WWAV is trading. I'm not sure if this is related, but revaluation of the strategy is not occurring either, When I look at my Open Positions, "LAST PRICE" seems to be as of last Friday's close.

Is something hung?

Len
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Aleksey

#16
Please wait
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Aleksey

#17
Sell signals for WWAV and WWAV.B have been added to your trading system, using the opening prices (18.73 and 16.77, respectively).
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LenMoz

#18
Sounds good. Thanks for your work on this.

One last question - Was lack of funds the reason my two unrelated "buys" failed?
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LenMoz

#19
I think found my answer under "Margin exhaustion behavior", where Cone Wrote:
QUOTE:
WealthSignals sweeps market orders first and then limit/stop orders. Wealth-Lab does this too, however, a W-L backtest will always process market exits first to make cash available for entries on the same day. Unlike Wealth-Lab, WealthSignals processes orders in near real time using time-of-sales reports. Assuming maxed out buying power (includes margin) and buying a $5000 position in Stock A and selling a $5000 position in Stock B. If Stock A ticks first, you'll be able to purchase Stock B. However, if Stock B ticks first, the market buy order will fail, even though the Stock A sale will take place, maybe even 1 msec later.


Len
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TechTraderUSA

#20

I recently noticed under S&P 500 NN Trader's Closed Positions tab that WWAV and WWAV.B were purchased for $0.00 on 5/24/2013. Historical research indicates that the range for WWAV on that date was actually $17.77 - $18.58 with an open of $17.80 and the range for WWAV.B on that date was $17.06 - $17.87 with an open of $17.39.

Just wondering whether Wealth-Signal's reporting system should be adjusted to reflect a different basis for these stocks (i.e., the actual prices at which these stocks were purchased on 5/24/2013) in order to avoid distortions in return metrics for S&P NN Trader's system.

In general, how does Wealth Signals handle new stocks that are added to a portfolio as a result of a spin-off when they are not already in Wealth Lab's database of stocks? Do they need to be added manually to the database?
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LenMoz

#21
TechTraderUsa,

My preference to handling the basis for the "Dean Foods Spinoff" is above at Post #14. WealthSignals used another option. Note that WealthSignals is still in beta and Cone indicated (at Post #13) that their DF handling may be under reconsideration. I provided the explanation below in an area of the Forums that is private to Publishers and their Subscribers (so you don't have access). While "S&P 500 NN Trader" is not for sale at this time, I am treating it as though it were, to evaluate the work a Publisher needs to do.

QUOTE:
On May 24, 2013, Dean Foods (DF) granted shareholders A and B shares of Whitewave (WWAV and WWAV.B) and simultaneously, the DF shares lost about half their value. Because Whitewave is not an S&P 500 company, these WWAV shares were sold manually. Subscribers are advised to sell their WWAV and WWAV.B shares as well since the strategy will never give a sell signal.

The WWAV shares had a basis of zero on WealthSignals, so look to be 100% profit. The basis $ stayed with DF. DF, when it is eventually sold, will look like a loss, but may not be.

See discussion at http://www.wealth-lab.com/Forum/Posts/Dean-Foods-spinoff-33318

WealthSignals should also respond to your post. Thanks for your interest.
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LenMoz

#22
Hello,

For strategy "S&P 500 NN Trader, please enter a WS sell order for tomorrow, 6/13, as follows...

Sell 282 DF limit at 9.62

I entered the alert through the WLP WealthSignals tab. It showed as pending on the web site. After the waiting period, the signal was dropped. The email showed no signals.
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Eugene

#23
Hi Leonard,

The signal is not dropped. There's a Staged signal to sell 581 shares of DF at Limit @ 9.62. It should be on your Staged tab where you can edit it.
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LenMoz

#24
"Today's Signals" tab is empty and doesn't say "No Signals Today" either, if that's the tab you mean. The email had no signals either. I can't see any sign of the DF sell. The 581 won't work, needs to be 282. That's due to the spinoff and the manual stock split I did in WLP, per Cone.

It may try the trade, if you're seeing a Staged signal somewhere, but the user interface isn't seeing it.
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Eugene

#25
The website should start displaying signals Staged for tomorrow after 12:00 a.m. ET but new Published signals should be displayed immediately (in my understanding). Since it's 1:30 a.m. ET, you should be seeing that Staged signal. We'll look into the question and get back to you asap.

p.s. Have you tried refreshing the page?
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LenMoz

#26
Refreshing doesn't help. Usually until midnight I see two trading days of signals, the market day just ended and the next one, different colors. At this (late) moment, no signals are showing.

And the blank email matches what I get for my other strategy, which trades unsupported symbols (Small Tech stocks).
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Eugene

#27
The size (581) has been adjusted to 282, and the signal has been Published. The email to subscribers has been resent.

There could be a potential issue staging signals in UNsupported symbols - we'll look into it.
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LenMoz

#28
Thanks. The shares were sold.
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LenMoz

#29
Cone, At #13 you said,
QUOTE:
There's no single right answer to handle this, but we have an idea for an adjustment that would make the position metrics work better. Before I explain it, how would you suggest to handle it?

I gave my response at #14. I've been patient during the 6.5 rollout, but now will you explain your "idea for an adjustment"?

And see TechTraderUSA's question at #20.

Len
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Eugene

#30
QUOTE:
In general, how does Wealth Signals handle new stocks that are added to a portfolio as a result of a spin-off when they are not already in Wealth Lab's database of stocks? Do they need to be added manually to the database?

Yes they do.