GLOBAL INVESTING: Trading up - from the streets to the Street: The once-homeless investment guru used simple market timing to create his profits, writesAlison Beard
Financial Times; Mar 4, 2002
By ALISON BEARD
The baseball cap and leather jacket are unconventional. The nickname - "Waxie" - doesn't exactly inspire confidence. And the infomercials may spark more comparisons to Suzanne Sommers than to Warren Buffett. But Michael Parness turned a Dollars 33,000 investment into more than Dollars 5m in less than two years, using a simple market timing strategy.
The 38-year-old president of Trendfund.com, who was once homeless, recently bought a Dollars 2.1m apartment on Manhattan's Upper West Side, where he lives, works and runs his 15,000-subscriber e-mail newsletter business.
Mr Parness is not the only investing guru borne of the internet age. Google, the online search engine, lists 176 stock and bond investing newsletters, with titles such as Timer Digest and Wall Street Whispers, as well as the twin websites Stocksplits.com and Stocksplits.net.
But Waxie may be one the web's most colourful characters. First, there is his background. A Queens native who lived on the streets during parts of his teens and 20s, Mr Parness ran a baseball card dealership from 1989 to 1999.
"I had a bookie when I was 12 (and) the baseball cards taught me about markets," he said of the wax-packaged products that earned him his nickname. For example, he could buy a Ken Griffey Jr card early in the season, then take a profit when the centrefielder won Most Valuable Player honours that year. But "I never read a book on trading stocks," he said. "I never took an investing course."
His initial forays into the stock market - first on his own, then with a broker - failed. But in 1999 he came up with his strategy of making short-term investments to track documented market trends. For example, stocks usually run up before earnings announcements, so Mr Parness shorts them, borrowing shares before the announcement in order to sell them after. Depending on the trend, he holds the shares for "five days to five weeks" and aims for a 30 to 40 per cent average gain.
His profits are not as large as they were in the bull market of 1999 and early 2000. His first big money-making strategy involved dotcom spin-offs, and few occur these days. But he has managed to make a profit during the downturn because "we're traders and we're nimble", he said. "We don't have a portfolio of stocks that leaves us exposed."
For example, Mr Parness bought shares and options in technology companies such as Akamai and Cisco Systems to play the "January effect", whereby stocks post above-average returns at the start of the year. But he was entirely in cash by January 5.
Last month, he shorted 10,000 shares of Brocade Communications Systems the day after the company reported earnings. When the stock fell from Dollars 34 to Dollars 27, Mr Parness covered half his position. He covered the rest at prices between Dollars 25 and Dollars 24, closing out the investment last Thursday and pocketing more than Dollars 60,000.
"The people making money in the market now are traders, not investors," Mr Parness said. "Companies are still trading multiples that are obscene . . . (so) the stocks are here for us to use and abuse."
These sentiments are echoed by other internet investing gurus and newsletter publishers, many of whom decry mutual fund managers and Wall Street analysts for their buy-and-hold strategies. But Mr Parness sets himself apart because - even as he cultivates the regular-guy persona - he has a better chance than most at becoming a celebrity.
His first book, Rule the Freakin' Markets, hits stores this week. Earlier this month, he joined Susan Sarandon, the actress, in hosting an awards gala to benefit Help a Parent, Save a Child, a favourite charity. In the summer, he begins work on his first film, Saving Graces, starring Natasha Lyonne, which he wrote and will also direct.
And, as if that weren't enough, Dustin Hoffman has optioned the rights to his life story, tentatively titled Mr Loser. When Mr Parness isn't trading, e-mailing his subscribers or managing a 12-person staff that is spread all over the country, he works on the script.
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