Throwing stuff at the internet to see what sticks
Tuesday, June 04, 2002 You know that old saying, “If you so smart, how come you ain’t rich?” Sooner or later, everybody has to come up with his or her own answer to this question. In my case, the answer is that I ain’t so smart.
A few years ago, I decided that the best mechanism for converting my staggering brainpower directly into something I could exchange for goods and services was the stock market. Keep in mind that I know enough about high finance to fill the white border of a postage stamp, but this was back when all of those online trading companies were burning up airtime telling us that the only reason we still had to work at all was because our ignorant brokers were dragging us down with their jaded Wall Street worldviews, shady recommendations, and hefty commissions.
I believed the hype, and I made fourteen thousand dollars on my first trade. In one day.
I’m going to savor that paragraph for a little bit before I explain.
In one day.
Who’s the man?
Okay, that’s enough.
The fourteen thousand was based on an initial investment of a hundred thousand. I know enough about high finance to calculate that this was roughly a fourteen per cent return. Give or take.
Fourteen per cent isn’t exactly doubling your money. But a week or so of fourteen per cent a day is. In your face, Warren Buffett!
Obviously I didn’t get fourteen per cent the next day. In fact, I lost enough to bring me back down to three percent. And that was the last day that my portfolio had six figures at the closing bell.
Here’s where I should clarify, in case you haven’t already figured it out, that all of this stock trading was totally virtual. I was participating in the Yahoo! Investment Challenge, an online game in which competitors started with a hundred thousand dollars at the beginning of the month. The winner, simply enough, was the player with the highest portfolio value at the end of the month. It only took me a few months of playing to realize that I didn’t have the slightest chance of winning. Mind you, this was the golden age of the dot com stock. It wasn’t unheard of for some obscure tech security to suddenly balloon to five or ten times its price in one day. This would happen several times a month. Whoever was sitting on them (and someone always was) would immediately have a virtual portfolio worth millions of dollars, and nobody was ever going to catch the lucky bastard.
But as easy as it is to blame my failure on the game’s roulette-like nature, the truth is that I couldn’t even beat gravity. The only way to hold onto my hundred grand was to not buy anything. I tried everything I could think of. I bought obscure tech stocks, hoping they would balloon in value. They went down. I bought infrastructure stocks like Intel and Cisco, which at the time were considered a slightly less dangerous investment than Tokyo real estate. They went down. I did market research, learning which companies were going to be the Next Big Thing. They went down. I bought five-dollar stocks in lots of twenty-thousand, waiting to cash in on the inevitable eighth-point uptick because they had nowhere to go but up. They went down.
There was a time when I imagined borrowing a few thousand dollars from the bank and dumping it in the market. I’d hop nimbly between the fastest-rising stocks on the street until I had enough capital to quit my job and stay home all day ogling Maria Bartiromo, earning what used to be two days’ pay every time one of my stocks traded up a quarter. I never won the Investment Challenge’s $5,000 prize, but I did spare myself the humiliation of defaulting on a bank loan and losing everything I own in the stock market. If Yahoo! Is still hosting the Investment Challenge, I can’t find it; the $5,000 prize might be factor there. But while it lasted, it was an invaluable educational tool. It taught me that if I were to try day trading, the likely result is not leisure and luxury, but a wardrobe that consists of a single barrel. I played the Investment Challenge for five months. My virtual investments, which originally totaled half a million virtual dollars, are now worth less than ninety thousand. And fifty thousand of that is virtual cash. So much for “buy and hold.” I’m just glad I found an easy way to learn that I’m a virtual moron.
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A related story:
When Trash was in grad school, she took a finance class. One of the projects was for each student to create a virtual six-stock portfolio based on an initial, imaginary investment of $150,000. When the class met to discuss the assignment and Trash’s turn came around, here’s what she said:
“I don’t know how you guys all raised $150,000 so fast. All I could come up with was $35,000, and I had to get a loan and take out a new mortgage and max out my credit cards and ask everyone I know for money.”
“Um…” the professor began.
“She’s kidding,” interjected Trash’s friend and classmate.
We laugh a lot at our place. posted by M. Giant 3:48 PM 0 comments