Tears of a clown:
interactive.wsj.com
February 11, 2001
Millionaire for a Moment: One Investor
Made Big Gains, but Nearly Lost It All
By MATTHEW GOLDSTEIN
A year ago, Craig Mazeska, a teacher at a small school for developmentally disabled children near Baltimore, was living proof that anyone with enough nerve could get rich trading stocks online.
In just four years, Mr. Mazeska, now 30 years old, parlayed an initial $20,000 investment into a portfolio of more than $2.2 million. His hot hand allowed him to buy a two-bedroom condominium and a BMW sports car. Some acquaintances even suggested he quit his teaching job and simply trade stocks online.
It's a good thing he didn't.
Since last year's tech plunge, Mr. Mazeska's portfolio has been sliced to $420,000. Still ahead of the game, you say? Not quite. Mr. Mazeska, it seems, still owes the Internal Revenue Service more than $350,000 in unpaid taxes stemming from his huge trading gains of 1999. His once-giddy dreams of an early retirement have given way to the bitter reality of struggling to stay one step ahead of bankruptcy.
"I went from this state of euphoria to a point in December when I had to consider selling my home," says Mr. Mazeska. "I was greedy. I let my ego get the better part of me."
All Too Common
Mr. Mazeska's riches-to-almost-rags story is an extreme example of the kind of pain felt by millions of investors last year. And in hindsight, his mistakes are painfully obvious -- he bought too many stocks on margin, invested too heavily in technology stocks and waited too long to pay capital-gains taxes on his earlier profits. Maybe worst of all, he believed far too much in his stock-picking prowess.
The result is that Mr. Mazeska's story is a cautionary tale about how online trading can cause investors to lose sight of what buying stocks is about -- investing for the future.
Mr. Mazeska admits that stock trading became a "mild obsession." Like a day trader on speed, he sometimes made 100 transactions a day, often between classes at work. He also found himself taking greater risks with his money by making an increasing number of trades on margin -- money borrowed from a broker. At the height of his success, he says, trying to outwit other investors often became his No. 1 priority. "It was the challenge," says Mr. Mazeska, who has an undergraduate degree in economics from Johns Hopkins University. "I was beginning to think I could do no wrong."
The Lure of the Net
Looking back, it's easy to see how Mr. Mazeska could have found online trading so seductive. In 1999 alone, he had a portfolio gain of $1.46 million. One of Mr. Mazeska's best moves came in the summer of that year, when he began loading up on 40,000 shares of USWeb/CKS -- an Internet consulting firm that's now part of MarchFirst. At the time, USWeb's stock was selling for about $20. Mr. Mazeska began selling most of his shares when the stock doubled several weeks later -- for a profit of about $800,000.
But like many investors, Mr. Mazeska's golden touch began to disappear last spring. Just before the ground began to rumble beneath the Nasdaq Composite Index, Mr. Mazeska made a 175,000-share bet on E*Trade Group last March, putting almost all of his money into the online brokerage firm's stock. At $26 a share, Mr. Mazeska was convinced the stock was greatly undervalued. He was so sure of himself that he bought half of those shares on margin.
But within days, E*Trade skidded to $21 as technology stocks began plummeting. His brokerage firm, Charles Schwab, issued a margin call, and Mr. Mazeska had to sell $200,000 of stock simply to cover the loan. Then he got some more bad news: His accountant told him he owed about $500,000 in taxes on his 1999 capital gains. Meanwhile, E*Trade's stock kept sliding. "I was overly confident, and I broke all the rules," says Mr. Mazeska.
Mr. Mazeska now realizes that the first thing he should have done in 2000 was pay his 1999 taxes, even if that meant liquidating lots of stock. Instead, he negotiated a monthly installment payment plan with the IRS. But the $30,000-a-month tab proved too much, especially when the value of the stocks in Mr. Mazeska's account kept sinking.
Now, after seeing his portfolio shrivel, Mr. Mazeska is duly chastened. He's spending a lot less time trading stocks and has adopted a more conservative investing strategy. He has sworn off buying stocks on margin and is diversifying his portfolio beyond individual stocks to include safer bets like mutual funds and bonds.
And, at least for now, it looks like Mr. Mazeska will be able to keep his home and his car. Considering where he has been the past year, that looks like a triumph. |
