My Adventures with Your Money
My most memorable stock trades involved margin loans, which are borrowed monies.
If I start with $100 and borrow another $100 and the market doubles, then I make $200, pay off my $100 loan, and end up with with $300, so my portoflio tripled.
But, if I start with $100 and borrow another $100 and the market halves, then I lose $100, pay off my $100 loan, and end up with nothing, so my portfolio wiped out.
If you owned 401ks, IRAs, mutual funds, stocks, or options, any time in the last ten years, you unwittingly lent me money, and you unwittingly made a killing at my expense.
During the dotcom bubble, I bought a stock called Safeguard Scientific (SFE), an incubator for startup companies. (One of their companies, eMerge Interactive, developed CattleLog, a suite of individual-animal data-collection and reporting tools. No joke, seriously.)
I rarely tout stocks, but I touted SFE, and one of my partners touted it to his girlfriend, who bought it at $25.00.
Within weeks, SFE quadrupled to $99.00, and Our Hero had the following conversation with his Partner With A Quadruple:
PWAQ: Yowza!! That stock took off like a Saturn rocket!!
OH: If that stock gets any higher, your girlfriend is going to be screaming my name, when she’s with you.
PWAQ: If that stock gets any higher, I’m going to be screaming your name!!
You can probably guess how this movie ends. Before long, SFE was selling at $5.00, and my partner and his girlfriend are still screaming my name, but with much less affection.
Back in the day, I knew that these internet stocks were overvalued, so I shorted one. Listen, while Our Hero discusses his brilliant strategy with his Lovely Wife:
OH: Instead of buying low and selling high, we will be selling high and buying low, using borrowed stocks. When the stocks crash, we will print money, buckets of money.
LW: If the stocks don’t crash, can we lose money, and if so, how much?
OH: If the stocks don’t crash, we can lose money. In theory, these losses can be infinite, so we will be shorting an unknown stock with a horrible business that is bleeding cash.
The company is called (get this) Amazon.com, and (hoo boy) they sell books (it gets better) on the internet (this is like taking candy from a baby.) What a crazy idea, it’ll never work!!
(Maybe the knuckleheads at Amazon.com should have checked with the rocket scientists at Safeguard Scientific, who fund real cutting edge, life-changing technology like CattleLog.)
You can probably guess how this one ends, too. A little-known internet analyst named Henry Blodget predicted that the stock would double, which it did in less than a month.
And so it goes.