War Stories

Update to Sept 22, 2012 post:

This is interesting in light of what I wrote yesterday about the random walk theory. I'm sure that I had heard about the random walk theory back then, but did not read up on it. I dived into the markets with the idea to beat the markets because I thought I could. My methods didn't work out, but it seemed like I came close. You can only beat the markets if you find an inefficiency in it.  I was using a home grown software package that I also intended to market if it ever worked.   Of course, it didn't.

But what if the markets are rigged? You can get that impression. Indeed, there is crooked shit in the markets, and you can definitely get burned. I know that from first hand experience. Never did a comprehensive tally of my winnings and losses in the markets, but I'd say I lost more money that I gained.

What about the markets today? I am still of the opinion I had when I tried going short in 2009. The markets are bound to crash at some point, but as with all things, it is very, very hard to judge the timing of it.

end update, the original post from 2012 follows directly below:

The stock market is a bit nuts right now, so I'm not in it.  But it may be useful to go back and tell a few of my investments and why some worked and others didn't.  Or, to put it more accurately, why I think it happened the way it did.

I thought about getting into the markets back in 1987.  I talked to a guy about a stock broker job and it seemed like he wanted to hire me, but I got wet feet.  Not too long afterward, the market crashed.  It seemed like a good decision.

By 1998 though, I decided to get in.  Online trading made it easy for anyone and the market was going gangbusters, so I was in.  But I got creamed.  One of the first stocks I tried was Computer Horizons.  This was a Y2K stock, and by 1998, it had seen its better days.  But this was not obvious, at least to me at the time.  But there was a pretty strong hint.  It is called a head and shoulders type chart.  By the time I started trading, I knew what a head and shoulders chart was, and I saw it for Computer Horizons.  The trouble is that I didn't believe it.  So, I invested anyway and got my head handed to me.

To make matters worse, I did what you shouldn't do.  I averaged down.  I knew this was against good practice, but I did it anyway.  It only added to my losses.  Being stubborn when you are wrong only makes matters worse, you know.  You have to be able to admit to yourself when you are wrong.  Did I learn this lesson?  No, because a couple years later, I did it again.

By 2001, the bull market was over and I decided to stay bullish.  Big mistake.  I bought a stock called JDS Uniphase.  As with Computer Horizons, it became obvious that was a loser, but I didn't want to believe it.  So, I averaged down and only added to my losses.  The fate of that stock is hardly any better than Computer Horizons.  While Computer Horizons has gone out of business, the last time I checked, JDS is still kicking.  But that investment would never have paid off.  There are times when I look back and think that it might have if I waited a little longer, but time muddies the waters a bit.  Closer examination showed that it was a loser and the loss could never be regained.

In both of these cases, I really didn't know what I was doing.  That's why I lost so badly.  So, I stopped speculating in stocks and tried some other stuff.  Stock picking ain't my game.  But what game could I play and win?  I tried currency trading and precious metals.  Currency trading didn't work.  There was a reason why it didn't work.  Currency trading is highly leveraged.  If you time it wrong, you can be wiped out and wiped out fast.  It was too hard.  Precious metals did work.  I think it worked because the risk was limited.  Your investment can never be completely wiped out.  It will always retain some value, so if your timing is right, you can make money.  If your timing is wrong, you can get back most of your money.  Yes, and this did work for me.  I regained most of my losses from before, plus a small profit.

Despite all the failures, I wouldn't condemn trading.  There were plenty of opportunities to make a killing, but it didn't happen.  I just ran out of time.

For instance, just before the market started on its last upward blowoff top in 2000, I put in an order for Broadvision.  The order nearly completed when the rally began.  That meant I missed the boat by 3/8, which is about 38 cents per share.  If that order filled, the potential would have been a 20 to 1 return on my investment.  Of course, I would have had to had played it right to get that, but the opportunity was there.  There are many stories like this that I could tell.  But it never did happen.  I had to understand what a blowoff top is and why it was a blowoff top.  I had to understand how doggone hard it is to judge a bottom perfectly and buy at the bottom.   It is also doggone hard to judge a top too.  But this is possible, just not possible to do with great precision.

By 2006, I still wanted to trade stocks so I bought a stock called Altair Nano.  They made batteries intended for automobiles.  But in 2007, things started going south for the economy.  Fortunately, I saw and remembered that you don't want to be long in the markets when the economy tanked.  I sold and went short the entire market.  That play worked like gangbusters.

Going short is high risk though.  It worked for me because I was right.  But if you're wrong, your losses can be unlimited.

By 2009, I was absolutely convinced that current economic policy was nuts.  I tried going short, but I got my butt kicked.  I've been out ever since.  Sure, I could have gone long and made big bucks, but I have no confidence in the markets.  For I've learned that when the market turns against you, losses can mount very fast.  I wouldn't touch these markets with a ten foot pole.

That's a short history of my doings in the market.  Basically, it all boils down to learning from the school of hard knocks.  You learn what works and what doesn't.  Besides that, you learn about yourself.  For example, some people can tolerate risk better.  I'm not one of those people.  A high risk play is probably not for me.  You have to know these things if you want to have any hope of success.  Another thing is that you can make plenty of money if you are right.  Likewise you can lose your butt if you are wrong.  So you better be right.  The opportunities are there as long as the market is sane and working properly.  I don't think it is right now.