The 'MARGIN' of Error
A Lesson Learned - from The Motley Fool:
"Fellow Fools,
I write this for several reasons, many of which are not clear to me at this point.
I do know that I have had a horrible day and so I need to cleanse myself.
I also write it to educate (but not necessarily amuse or enrich) members of a community for which I have great respect.
I am 27 years old and I have learned more from this community and site than any other, hands down.
Today, however, I punctuated a painful, painful lesson - one which I will grow from. It may prove to be the most valuable investing lesson I ever learn.
Here's the short story long:
I have been a Fool for quite some time - I've got all the books, several pages on the site are in my top bookmarks, I listen online to the radio show religiously each and every week. I believe the Gardner Bros. to be genuine and well-intentioned. I have been to a Fool book-signing. I wear a Fool ballcap.
Though I have rarely posted - I have lurked on these boards silently and considered myself a member of this community for quite some time. Many of you are funny, some of you are brillaint. I feel fortunate to know this place.
Over the last 2 weeks, I have been involved in the Rule Breaker Seminar. Unfortunately, I haven't been able to get much out of it. Here's why:
When the Fools recommended CRA in December, I placed a small amount of my modest, yet not-too-shabby-for-a-20-something, portfolio in it.
As you all know, it began to do very well. Enjoying the success and beginning to learn more and more about the company, I continued to buy more. I began to use a "margin" account to buy Celera. I was borrowing from my broker to buy more and more. The stock continued to rise. Things were looking unbelievable from my vantage point.
Next, the unthinkable. In the last 2 weeks, Celera has fallen from its high of 276 to 85 at one point today. Why I will never know - perhaps just to teach me this lesson.
As it fell, I told myself what a great chance it was...what a sale...what idiots the sellers were, running scared from meaningless Clinton/Blair comments and throwing all biotechs in the garbage...blahblahblah, etc....
On the way down, I began to sell my other stocks to get Celera, cheaper (and again, using that MARGIN)
I couldn't believe it at 170 and I bought.
I was stunned at 150 and I bought.
At 130, I sold every other stock I owned and margined myself to the gils.
I was all Celera, all the time. And I was convinced I'd turn a massive profit on the swingback.
I held each and every share until the bitter, bitter end - which came, (surprise - bitterly!), this morning.
When Celera hit $85 a share, my online broker was forced to sell my entire position to cover my margined debt. At that point in time, my shares were not worth the margin debt I owed, much less the required level of minimum maintenance.
The fact that the stock bounced 21 points from that makes it just that much more disgusting - though if I had been truly Foolish, I wouldn't have been so outrageously margined and the this morning's brief meltdown wouldn't have really mattered.
As I sit tonight - I have no shares of Celera in my account and an account that was worth almost $60,000 and was full of 6 promising, fantastic stocks is now worth $0.
In fact, it's worth less - I must send $1,500 to the broker.
I wiped out three years of Foolish saving and investing in TWO WEEKS with reckless, careless margin debt.
It has almost made me physically ill.
BUT I am doing my best to maintain a happy grin and vow to get back on the horse and ride it smarter this time.
I really have no other choice.
It might be quite some time before I post again at the Fool, needing some time to heal my wounds and focus on my future.
But I will be back eventually with a basket of Rule-Breakers and Rule-Makers and I will learn from this tough, brutal lesson.
I will again dig in and I will again change my financial destiny. This time, I'll do it with stocks I own and I will not get caught up in hysteria or visions of overnight riches.
Chin up, Fool on.
I wish you all the best of luck and hope my lesson here helps save someone from doing to themselves what I have just done."
NOTE: Margin Update:
"SELLING MOMENTUM RISES WITH MARGIN CALLS"
Margin calls compounded the basic selling momentum, analysts said, as brokers demanded that customers deposit enough cash in their accounts to meet minimum requirements.
The New York Stock Exchange said margin debt was at a record $278.530 billion in March, up from an old high of $265.210 billion in February."
biz.yahoo.com
It was only a question of 'when' not 'if' the dot com bubble would burst and reverse NASDAQ tech mania. It ain't over yet. While there will likely be some recovery following 'tax' day, I think it even more likely the tech laden NASDAQ will be racheting down over the next several weeks. FWIW
Good luck
SargeK |
