Another margin horror story
I guess I respect those who try to warn others from school of hard knocks, but he still doesn't rule out using margin.
From: www.ragingbull.com/mboard/boards.cgi?board=LDP&read=556
By: roundsontarget
Reply To: None Tuesday, 4 Apr 2000 at 5:44 PM EDT
Post # of 579
Some thoughts for all...
Days like today remind us of the danger that lurks in the markets. I liken this danger to a shark in the ocean. The shark is ever present and, perhaps more importantly, a necessary and critical component of its environment. We enter the shark's environment willingly, knowing that he is there, but believing that the probability of feeling his strike is unlikely. However, inevitably, some of us are struck, and struck hard. Such was the day today. The shark struck, and though it was painful, in the end we did make it to shore -- though a little worse for the wear.
I have been investing for a number of years. I am a CPA and spent quite some time with a Big Six (Big Five now) accounting firm auditing SEC registrants. I am almost fanatical about my due diligence, reading everything I can get on a company and painstakingly analyzing their financials before I make an investment decision (a process that lead me to LDP, by the way). I also have a high tolerance for risk. I am now an executive at a large, closely-held company and am enjoying a successful career.
But today...I got bitten hard. In fact, I think the shark got an entire limb this time. Oh, I would have been fine, I think, had it not been for one thing, one deadly little detail -- margin. This animal I do not fully know yet, other than he is two-faced, without a doubt. He's most certainly your friend when things are looking up and he is most certainly your worst nightmare when the bottom falls out. Leverage, I have found, goes both ways. Three weeks ago my partner and I were basking in the glory of 6-figure profit on a little telecom company called ADSX -- aahhhhh, it felt wonderful. Today, we sit somewhat dumbfounded, our only remaining investment a small position in LDP. The rest of it was sold, at bargain-basement prices, in an effort to fend off the shark and remove the overburdening weight of the margin beast so that we might reach shore in one piece.
This was, without a doubt, an amateurish mistake made by two educated, well-versed businessmen/investors -- and an important lesson some years in the making. I was lucky, the money that I lost in the frenzy today was disposable. It was risk capital, pure and simple, and my life was not effected by its disappearance, other than to make me a bit queasy, I'll admit. I am lucky enough to be in such a situation.
However, I share all of this with you so that some of you might consider the story of the shark as you contemplate your own margin balances, most particularly if they involve funds that you really could not afford to live without. For as I thought about the dollars that evaporated into that wispy void known as "the market" these last few days, I asked myself, "What if I could NOT have afforded to lose that money?" It was a shocking, disquieting question and one, I am sure, that is being pondered by many after the turbulent session today.
My tale today, as I said, is an expensive lesson to learn, but, for me, it is affordable. For many out there, they have truly margined their futures in search of riches and, if you happen to be numbered among them, you should know that this makes the game with the shark that much more deadly. Be careful and prudent and patient, my friends.
For the record, I am not closing my margin account. My partner and I will rebuild the remnants of our portfolio (in this fact I am extremely confident for, as I mentioned, our last remaining position is in LDP, a company who's day has not yet arrived -- this is truly an undiscovered gem). This will be an exciting challenge. We WILL however, be much more prudent in our use of the borrowed monies that margin makes available.
I look forward to being an informative and productive member of this board. Good luck to all. Any thoughts or discussion is welcome.
Good trading and many profits,
Rounds
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