Tuesday, October 13, 2009

Like Gump But Without The Smarts: More SOES Stories & Trading Lessons


I have the unfortunate luck of having been in some of the best, upwardly mobile stocks of all time, and not taking advantage of it.

There - I said it.

Like Forest Gump - wherever I live, the craziest bullish stock of all time happens in the same place.

Case 1: DELL

This stock was the best stock to buy and hold for 5 years straight in the 90s. I was living and trading in Austin and traded in and out of DELL countless times. I discussed the problematic nature of my DELL trading in previous blog posts. Suffice it to say I left about $15 million on the table with that one :-(

Case 2: QCOM

When I moved from Austin to San Diego in 1998, QCOM was in the mid forties. A year or so later: the cellphone boom. QCOM went from a regular stock to something just insanely bullish. I finally figure out that I should get long around $187 :-).

I bought 200 shares during a breakout and held on. QCOM went and went and went. I was still long my 200 shares at 440 dollars. This is where my DELL memory really played havoc on my finances. I remembered how I failed to buy and hold DELL and thought this time I finally did it right. I was up over 200 points on 200 shares and was ready for the split and continuation of the run up. This was going to be my million dollar stock...

QCOM pulled back, and then it pulled back some more. I held on tight and it continued to pullback. I finally sold my position at 192. The desire to be right and make money was so bad that it blinded me to any kind of money management rules which would have gotten me out much much sooner with a ton of profit. It was crazy how I just let all that money get away from me, but people do the same thing all the time. It is so difficult to catch yourself in the act.

Avoiding These Mistakes

Since then I have devised a couple of great ways to avoid these types of mistakes. One is a mantra of knowing that tomorrow is another day and anything can happen. Treat today like it is your last trading day, do the right thing. I don't focus on the future because I came to realize that it is impossible to predict. There are just to many variables out there that can impact a theory. The most important part is that the market does not have to make sense to you. I learned the very very hard way that a market can stay irrational much longer than you or I can stay solvent fighting it.

Another method of keeping yourself honest is to look at your open positions during the day and hiding the symbol column so you don't know which stock is doing what, you just know the P/L and act accordingly. This last exercise was one of the best I had ever come up with in helping to free myself from the bind of needing to be right. Give it a try and watch how your discipline takes over!

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