eBay's Mediocrity is the Gift that Keeps Giving

(A version of this article appeared on TheStreet.com)

December 26th will be the one year anniversay of my having purchased shares of eBay (EBAY).

During that time not much positive has been said about the company and just a few short weeks ago Ladenburg issued a downgrade, stating “until eBay can reclaim the $54 level, we believe eBay will be range-bound.”

Shares then dutifully traded down to the lower end of that range and have since been nestled near the mid-point.

The words “range-bound” are absolutely music to my ears, despite the fact that they may scream of mediocrity and lost opportunity to many others. It is as good of an example of the aphorism “one man’s trash is another man’s treasure,” as I can imagine.

While this has been one of my slowest trading weeks in a long time and everyone, including myself was eagerly awaiting the release of the FOMC minutes and Chairman Bernanke’s likely last press conference, I bought shares of eBay. Having done so marked the 15th occasion in the nearly one year period, with those shares always serving to create an opportunity to sell call options, usually utilizing short term and near the money strike levels

During that time eBay has indeed traded in a range. That $10 range from the yearly high to yearly low would have represented a 21% return for that very special investor who was able to purchase shares at the low and then exercise perfect timing by selling shares at their high. Even then that would have under-performed the S&P 500 for the year.

But for anyone practicing a buy and hold approach to stocks and entering a position at the time as did I, 2013 has been a lost year, with shares almost unchanged in that time. I’m certainly not that perfect investor who is able to time tops and bottoms. Instead, eBay is an example of why the imperfect trash is worth re-evaluating on a recurring basis. It is also an example of why there may be no particular advantage to over-thinking the many issues that everyone else has already considered.

EBAY ChartI don’t think very much about eBay’s ability to compete with Amazon (AMZN) or about challenges that may be faced by its profitable PayPal division. It’s not very likely that I would have any great or undiscovered insights. What I care about is illustrated in its chart that demonstrates the horizontal performance for much of 2013 that Ladenburg highlighted. (EBAY data by YCharts)

The average cost of the 15 lots of shares was $51.41, while the average strike price utilized was $51.43. Since eBay doesn’t offer a dividend, the net results for the past year have been almost exclusively derived from call option premiums and have delivered a nearly 34% return, subject to today’s sole open lot being assigned.

While eBay has given up much of the glory of its past as a market leader, there’s still glory to be had by making it a workhorse part of a portfolio that utilizes a covered option strategy.