There are thousands of articles/blogs/TV-shows which doles out advice on:
– Gaining “financial freedom” …
– “Lead the life you deserve” (It really cracks me up when I see these dime-a-dozen informercials on TV firmly saying that basically the life the viewer is leading is not the life the viewer deserves! Now, what exactly is the “life you deserve”? Well, it involves a montage of shots showing pristine beaches, cocktail in hand, spectacular scenery, beautiful women (or handsome men) next to the person, a palace (i.e. home), fancy boats, lambhorginis etc! If this is actually the life I deserve, then someone has just been robbing me silly 🙂 …)
– “Stock picks for the year”
Based on the sheer amount of such good advice and people with such good intentions (of making random strangers very rich), it appears that there is a huge surplus of “good advice”. Let me take a different route and dole out the “bad advice” I have come across! Seems like there is a huge untapped market here 🙂
The time period is late 1999. Every single person (well, almost every single person) in US is “feeling rich”. Even people who cannot spell “c-o-m-p-a-n-y” correctly are talking of starting web-based companies and have even roped in very brilliant investors/financiers who feel as if they have just heard a pitch for the next Yahoo! (Google/Facebook etc. werent around then :-)) or some such. I recall seeing people having mutiple live stock tickers on their desktops and tracking stock prices whole day. Life was gooooooood!
This is the climate in which I thought of joining the party. Opened an Ameritrade account (based on a Friend’s suggestion) and started buying stocks of all the “high-flying” companies. I mean, companies whose stocks were on a tear. I did spread my investment around several companies (all in the High-Tech, though). What do I mean by “high-flying” companies? They were:
– Sun Microsystems
– JDS Uniphase
– PMC Sierra
Now when I look back, expectedly, I say “Good Job, George!” :-). For example, I first bought Sun (SUNW) at 113$ a share and was very happy about it. A couple of months later, SUNW came down to 80+$ and I thought, “Wow! What luck. Getting shares which were worth over 100$ for 80$”. Well, you get the drift … This went on for some time, roughly a period of 1-1.5 years, during which all I did was “buy”, “buy” and more “buy”. Dont get me wrong. This was not totally blind investing (e.g. buying a stock because I liked the name of the company 🙂 ). I did do the basics like analyst forcecasts etc. To me, most of these stock-market experts are people who say “see how much money we made for you” when the market is going through a crazy bull period and every Tom/Dick/Harry are minting “virtual” money and who say “tough luck man, there is a recession going on and everybody is losing money” when the market is going through a bear phase 🙂 I.e. like a “fair-weather” Manager, who is quick to take credit when the team shines and even quicker to blame team-member XYZ when the team fails.
So, after almost single-handedly propping up the flailing US stock market for a sustained period of 1+ years, I figured that I better stop this madness (Well, the reality is that my lovely wife forced me to … Heh! Heh!). This was in mid-2001. I sold all my stocks and made such a killing that my “capital loss carryover” is still going strong, even after almost 10 years!
One of my close friends is an “expert” in the stock market. By “expert”, I mean he also has a big heart and like to spruce up the economy in any which way he can 🙂 He is very passionate about stocks (which I do not really understand, because I would think that typically you are passionate about something when you are good at it) and sometimes his “passion” rubs off on me. To cut a long story short, after a long 6 year gap, during which I maintained my discipline and did not buy any stocks, I jumped at two great tips in 2008:
Tip1: His friend’s brother, who works for Morgan Stanley at Hong Kong, gave him the insider tip that Citi (which was at 35$ or something at that time) is a great buy if and when it goes below 30$. He also pointed out that Citi was above 50$ just a few months before then. Well, isnt that something? An insider tip from a “trust-worthy” source within the industry! I.e. a wall-street fat-cat advice! Wow!
Tip2: Start with an E-Trade account for 500$ and use that as seed money to invest in “good” stocks and watch it grow over a period of time. In a worst-case, even if I lose all the money, it is only 500$, right? Sounded good to me at that time.
What happened with Tip1?
I could vividly see the $$$ I was going to make, when, after weeks of judiciously following Citi stock price (even more than Citi employees even :-)), I bought Citi at 28$. What a thrill! I was able to put into practice a real insider tip. If you really are interested in knowing how this particular fairy tale ended up, please check the current price of stock “C” 🙂
What happened with Tip2?
Within 12 days of my opening the E-Trade account and buying the shares based on my friend’s wise recommendations, the account value was down to 40%. As the experts typically advise, I did not panic. The “cool dude” (i.e. me) waited for another week and the value came down to 20%. At this time, I said “to hell with all this” and vowed to just ignore this account and write down the 500$ loss, leaving behind whatever pittance was still in that E-Trade account. Three months later, I get a quarterly statement from E-Trade and I notice that they have charged me 40$ fine for not doing any trades! Talk about putting salt on a wound! Anyway that was “THE END” of this tip …
(01) Do not go by just a company’s past stock prices, but instead research the fundamentals of the company using their quarterly reports or exchange listings and other trust-worthy sources. [Note: This is not my advice, but just a random cut&paste from the web 🙂 My point is, there are millions of people who dabble in stocks and spend considerable amount of time on it, is it possible that almost all of them are losing money consistently? Even though I do not directly know anyone who has consistenly made profits in the stock market (though I do know a lot of “experts”), I would think there are some people who actually belong to this particular species. Personally, I do not have the sustained amount of time it requires to do solid/continuous research etc.]
(02) How good are these financial experts? I recall having a conversation with somebody a few years back and he was making the point that the experts make educated predications/guesses and it is not just based on pure luck. Well, whenever I tried to follow a “hot tip”, it turned out to be a magic trick where my money disappeared (in an instant) right before my eyes! A very neat trick, though …
(03) Tips from friends: I have nothing against my stock-expert friend mentioned above. He is a great guy and a very good friend. But his stock advice? Well, I have indicated to him, very respectfully, that I am very good at getting negative returns on my stock investments on my own and can do without his added help. Since I can bring down the value of a stock investment to 0$ on my own, and the value cannot go lower than 0$, his help would be an overkill.