I’ve always been a somewhat ambitious person, though much less so now than when I was younger. The change is mostly on purpose, as I found pride to be one of my major character flaws. So now I pursue things secretly rather than openly, I don’t tell people a whole lot about my plans, and I try to be a good man first and have fun doing what I love. If any greatness happens to come along with that so be it.
I’d say my ambition went into overdrive during my freshman year in high school. I went to a private Christian high school, and a lot of the families there came from money. Between 2:45 and 3:45 pm the parents would line up their cars in the parking lot to pick up their kids from school. I called this hour the Car Show. That year, I saw my first Ferrari in real life, owned by the father of a senior on my cross country team, who owned also owned controlling interest in a big hotel chain, or so I was told.
Once, during the car show, though this was 3 years later as a senior, I literally walked up with some friends to a woman in her car, which happened to be a Mercedes S600 Brabus and asked her if we could see her engine, because we loved her car so much. I’m not sure she even knew the significance of owning a Brabus tuned Mercedes. She was the quintessential Scottsdale wife, you know what that means if you’re from Phoenix. I lifted up the hood to see the V12 engine and a bunch of us took pictures. I wonder if she knew that she could destroy any car in the parking lot in a drag race at the time, which was no small feat at our school. That was back when 600Hp and 1100 ft-lbs of Torque was normal for Brabus V12s.
I remember freshman year, one of the parents of a girl that was a senior spoke to our class about starting a business. He said at his new job as CEO of the company he and his father started, he made about as much as a third baseman in Major League Baseball, which I later found out through the grape vine was around 15 million a year. I was impressed, and then more impressed when I found out he didn’t tell us the whole story, and he was actually a billionaire because of the sale of his company to a bigger conglomerate, which he was still allowed to run.
It was a time in my life when I was impressed by big business, by guys like Bill Gates, Michael Dell, and Steve Jobs. The whole “self made man” deal. I also learned very early, that all things being equal, it’s better to have money than not.
My tastes, and my heroes have definitely changed over the years, but it’s interesting to think back on the things I was into.
My dad was reading about stocks a lot at the time, and he encouraged me to read some of his books on it. I did, mostly over Christmas break in 2001. As a kid with little to no money, depending on what time of year it was, I read more about stock options because they offered the chance at huge gains with little investment. Moreover, my dad had an Ameritrade account he wasn’t using, so he let me use it in the meantime. Though it’s legal for someone of any age to own stock in America, Ameritrade wasn’t opening accounts for minors.
In the second semester of my freshman year of high school I made $790 in a single day in the stock market off of an initial $200 investment. Had I been watching the market so I could sell in time, and not in Algebra, it could would have been as high as $5000 due to an intraday spike in my put price. This was 2002 though, so it was long before iPhones and app stores, and my high school didn’t even have Wi-fi that year. I’d literally run to the library between each class to check on my stock options.
The $200 was the remainder of a Christmas gift from my uncle and aunt. They have always been generous relatives, and they made my high school experience more bearable with unexpected contributions of clothing, cash, shoes, and even my first cell phone.
I’d been doing a lot of research on a company called Computer Associates (NASDAQ: CA) and I’d felt that this company was going to decrease in price due to sub-par earnings, so I bought as many contracts of put options as $200 would allow me. 1 contract = 100 shares, and a put option is the option to sell a stock at it’s current price as a hedge against it going down in price in the future. As I was buying puts options on stocks I didn’t own, I was trading uncovered puts that would be valuable to someone who owned a ton of CA stock and might be looking to sell them when the market wasn’t doing too hot.
I did about a month’s worth of research before pulling the trigger and buying the puts. I remember having somewhere around 40 contracts, or 4000 shares of a put valued at around $0.05 cents. By the time I sold they were worth right around $0.20.
It’s so long ago that I can’t remember if I bought them at the end of January or the beginning of February. I have a better recollection of the stock price though. I bought my March puts when CA was around $34 and sold when it was around $28 or $27. Stock options are always worth a fraction of the price of the actual stock, but move based on the stock’s activity. Depending on the option’s price and expiration date, a 10% move in the stock could bean hundreds or even thousands of percent move in the option contract.
That fateful day, it was sprinkling outside, and I ran over to the Library just before English class to check on my stocks. There were three computers in the library, right next to the librarian so she could monitor what you were up to. I logged into Ameritrade shouted something along the lines of, “Holy crap!” and jumped out of my seat. My $200 was now $950. The librarian ran over to see what the trouble was, and stared at my Ameritrade account.
“What are you doing?” she asked.
“My stocks are up! I can’t believe this!”
“You can’t use school computers to trade stocks!”
“What do you mean? It’s not illegal.”
“You’re a child, you can’t own stocks. I’m going to have to send you to the dean’s office.”
“No it’s legal, I promise. Can I just sell these real quick?”
“Um…okay, can I use my phone to call my dad and have him sell them for me?”
“I don’t think I should…”
“Pleeeeaaaaase, please, please, please, pleaaaaase!”
Embarrassed by my begging, she retorted, “Ok, hurry up.”
At the time I’d have thought that in a school full of millionaires’ kids, this wouldn’t have been a first, but in retrospect, millionaires kids have the luxury of not needing to trade stocks in order to have access to tons of money.
Fortunately, my dad picked up his phone and was able to sell off my investment for a cool $770 profit. As a 15 year old kid though who could complain at such new found fortunes, despite how much luckier I’d have been if I had access to the internet during Algebra class.
The librarian called the dean, and setup an appointment for me to see him at lunch. I didn’t get sent straight there, due to the unusual circumstances, and my second period class about to start.
It started to rain more heavily, and I ran into Mr. Arthur’s English class right before the bell a little rain soaked, with a conspicuously huge grin on my face. After some probing by peers at why I was soaking wet, yet wonderfully cheery, I let it slip to a couple classmates that I’d just made a ton of money in the stock market. I didnt want to brag about money, but in my high, I forgot that this wasn’t a public school and they could do math. After some more questioning about how many shares I had, and what price did I buy the shares, and what was the current price, a kid named John quickly figured out my profit and congratulated me.
At lunch, I met with our Dean, who told me I was no longer allowed to used school property to trade stocks, and that I’d be disciplined if caught. He wasn’t mad at me, nor did I get in trouble, it was just a warning. As a burgeoning trader I had visions walking around campus with a cellphone and palm pilot trading stocks, but such visions were quickly shot down as I’d have to use the school’s non existent Wi-fi connection, which was school property, no matter what avenue I took. This was before the days of Edge, 3G, and LTE. A kid going to my high school now could easily do what I was doing from his iPhone, no sweat, no school property.
So died my dreams of becoming a high school stock market prodigy. Not before I used my profits to buy a Compaq iPaq (before HP bought Compaq) with Wi-fi off Ebay. I was hoping to find a way to clandestinely access the stock market, but the refurbished device turned out to be a lemon, and then it fell and the screen broke. It didn’t bother me too much, I had girls and track season to take my mind off things. I wouldn’t come back to stocks for another 6 years.
In 2007 before the launch of the iPhone, I made $10,000 in 2 weeks from a $2000 investment. Apple stock rose due to the announcement of the iPhone, but I was able to get in on the backend of that action right before launch.
This was my first stock trade since 2002, and it’s not as if I wanted to be in the market, but was sort of made for such a time as this. I’d been reading computer tech blogs pretty regularly for a few years now and my short term dream was for Apple to finally make a phone. I had already made the switch to Mac from Windows, and all that was left was my phone.
The iPhone was everything I could ever want, coming off my Palm Treo 650, which I still have, by the way, along with the broken iPaq, tucked away in my gadgets box. I saw Apple Stock rise get a big bump at the unveiling of the iPhone, and then settle back down to its normal price range. I was convinced that it would break $100, and then when it did I felt stupid for not buying stock. I was convinced it would break $110, and then when it did I felt stupid for not buying stock. This time I felt it would break $130, and I was gonna be there when it happened with my stock options!
I opened the first Ameritrade account, now TD Ameritrade, that I could actually call my own, now that I was old enough to do it all solo. It was May, and I bought $2000 worth of call options that was set to expire in June. I saw immediate results and my options began to increase in value very quickly. I knew every year, due to my tech blog reading, that the rumor mill got churning right before Apple’s Worldwide Developer’s Conference (WWDC). Though it was nothing compared to the buzz Apple gets today, and shortly before Job’s passing. I knew the weeks before WWDC would be a great time to buy stock especially with all the hype and uncertainty about the iPhone.
In a few days my $2k investment was hovering over $7k and I knew I had to get my friends in on this. I called up a buddy in Dallas and told him about my deal and profit. Being a stock market whiz himself, and much more knowledgeable than me, he got in quick, and in the end make over $3k profit. Some of my other friends wanted in, but couldn’t due to the intimidation of the stock market, or lack of funds. By the time I gave up getting anyone else in on it, my portfolio was at a little over $13,000.
With my new found cash-flow, I decided to buy the unsuccessful company I started back in 2005 from my friends who owned 15% and 25%. I felt bad that my idea hadn’t panned out and it was nice to at least pay them back their initial investment of $150 and $250, which was very much welcomed. I now owned 100% of the company I’d eventually turn into a somewhat successful, though very time consuming web design company, which I would eventually dissolve in favor of being a dedicated web consultant for my biggest client.
The Friday before WWDC, on June 8th 2007, my portfolio was valued at $24,000. My buddy in Dallas’s Apple position was about half that, and we were ready to rock and roll come the week of WWDC.
3 Shades of Greed
I’d started a new web design job that paid very well, and allowed me enough disposable income as a single 19 year old who lived with his parents to invest in this trade. Such a job with a wife and 3 kids isn’t all that much money, but when you have no debt and no bills, save for gasoline, it’s life-altering.
I was working that amazing job, and had $24k sitting in my Ameritrade account. The year 2007 was a real confidence boost for me in a lot of areas, seeing as how the year before had transpired. June 9th, and 10th 2007, I was high as a kite, and I wasn’t doing anything sinful.
See, I had this idea before I ever opened the Ameritrade account, while I was researching what my strategy was going to be for this trade. I knew enough about computers and the tech world to know this product would be revolutionary. I thought to myself, how much money can I make with my investment? What price do I think Apple’s stock can reach? I set Apple’s price target to be $130, my profit goal to be $38,000, and I had till June 29th to do it, June 22nd, if I wanted to play it safe. Here I was June 9th, already 58% there.
What was I going to do with that $38,000? I was going to tithe it, and then buy a car. Not just any car, a silver BMW 3 series coupe. I was frankly very tired of driving around my dad’s old ’97 Mustang and wanted a car that actually belonged to me. Moreover, I was gonna move out of my parents house and live it up like a less foolish version the prodigal son.
What I didn’t realize was that at 20 years old, with my fortunes turned so heavily compared with the previous year, you begin to feel like you’re on a lucky streak. I don’t even believe in luck, but I sure felt lucky everywhere I went. When you have your well laid plans go so well, and so contrary to what experts tell you is to be expected in the stock market, you start to do foolhardy things.
I’d hear things from really smart people that if you make 5% return on investment in a year, that was a good year. Here I was with 1100% return on investment in two weeks, headed for a 1900% return and I looked, at least to myself, like I was hustling the stock market.
Then there’s the fact that I’d been tithing for years since high school. I used to tithe my lunch money, and I had this prosperity gospel based idea that this was my “season of breakthrough”, to use some of that lingo. Though I’ve since left such false doctrines behind, they did weigh in on my actions at the time. I still tithe because I think it’s an act of worship to God, and trust in Jesus, though it’s not compulsory as a Christian. If I were an Israelite in 1500 B.C., then yes it would be mandatory, but even then with caveats if you read the Torah. Ironically I’m in a far better financial position than when I used to be a prosperity groupie. I digress…
There was another problem. Both my friend and I were invested in the same stock. This made things a little bit competitive. We had a conversation that Friday about selling off some shares, but neither of us wanted to miss out on what we thought was a sure thing, Apple’s $130 mark by next week. I’d bought in when Apple was $113, and it was already at $125. I knew just a $5 more rise in the stock price, with my call options time value at what it was, would mean as much as a double in the current value of my stock options, and I was expecting that rise to happen on June 11th, 2007.
This wasn’t just any friend. This was a guy I’d known since I was 4, and if he got the better of me on this he’d never let me forget it. He’s always been one to playfully poke at people.
Now when you’re seeing comets in the sky foretelling this moment, you believe God wants you to have it because of all your tithing, and you don’t want to sell yourself short and have your friend beat you on a trade that was your idea, you decide you’re gonna stick to your original plan and make $38,000 come hell or high water, and you’re gonna buy a BMW 3 series with that money.
What I should and shouldn’t have done
I should have sold 50% of my stock position that Friday before the market close and made $11k on the spot. When things are going that well, that’s what you do to minimize risk. Should I have sold all the stock? In retrospect, yes obviously, but you don’t have the luxury of retrospect when you’re in the past, so there’d have been no way for me to know. I shouldn’t have included friends in the trade as it clouded my exit strategy in a mist of competition. But you gotta learn right?
What I did
Come Monday morning I was ready to sell my stock if Apple crossed that $130 mark. WWDC was about to be underway, but my $24,000 had turned into $22,000. No worries, once they announce everything it’ll be better. $18,000. No worries, once they announce the GPS radio it’ll be better1. $15,000… Ok time to make a phone call.
“Yo, the stock’s dropping man! I’m freaking out here! You seeing this? I was all so perfect on Friday! Now it’s just slipping through my fingers.”
“David, you gotta sell man. I think I’m gonna sell… You’ve got a bigger cushion than me, you got in earlier. I’m getting out man.”
“Aaaargh! I know I have to sell, it’s falling like a rock! I had 24 Gs in my account last Friday, man! 24 Gs! Lemme sell this real quick I’ll call you right back.”
The social dynamic works both ways. In together, out together. By the end of our conversation I had $12.5 k left in my portfolio, and I dropped that stock like it was hot! But I was so disenchanted. How can you just lose $10k in one day? It’s hard to look at the flip side of a situation when you’re Mr. Invincible. I don’t think to this day I’ve fully recovered from June 11th, 2007. I didn’t lose money on paper. I put $2k in to a machine and got $12.5k back. It wasn’t a bad deal. That’s around 525% profit on my investment. The stress of that day isn’t something I want to repeat though.
It was like recently when flying back from Washington DC, our airplane fell about 20 feet out of the sky as we were flying through a storm. I was working on my laptop one second, and the next my laptop was floating in the air along with everyone’s belongings. I’m not hardcore Naija, but I reflexively said, “Jesus!” when it happened, and I said it loud enough for at lease a dozen people to hear me, LOL. That’s what June 11th was for me. Everything turned out fine, but it was a jarring experience.
Long story short, I withdrew $9k of the funds to spend as I wished, and kept $3k in there to see if I could make something happen with AT&T stock. AT&T didn’t go so well, and I sold at a loss, a big loss. With a little less than $1k left, I withdrew the rest of the money immediately and closed my TD Ameritrade account about 2 years later.
I used some of that money to wait in line to buy the first iPhone on launch day, and a company car for my new web design business, among other things here and there.
What I’ve learned from experience
Though I’m net positive in my experience, I’ve seen how easy it is to lose control and get greedy. I’ve experience how time consuming, distracting, and nerve racking day trading is. It gets in the way of real life and makes you a slave to whatever device gets you that stock information. My first experience with stocks was pre-Facebook, pre-Twitter, pre-iPhone, pre-LTE, and pre-App Store. Though, how often people are pulling out their phones looking at stuff, they might as well be checking their stocks.
I would never venture back into the market unless it was a similar situation to my 2007 iPhone trade, where I’m an industry follower, who loves the company, who is planning on buying the product, and I see a pretty obvious opportunity.
Don’t share your trades or strategy with anyone. Any trade I ever do, if I ever go back would be an Ovienmhada secret. No tips to friends. If I give a tip, it’s going to be because I plan on having to nothing to do with that stock for the time being. Social stock trading triggers too many emotions and slows down reaction times.
In 2011 at a friends wedding, I tipped that same Dallas buddy on Tesla Motors. I was super into Electric Cars, and did a ton of research because I planned on buying one that year. I couldn’t afford a Tesla, which would have been my dream car, but I loved the company’s strategy, the magnetism of the CEO, Elon Musk, and I really wanted to be able to afford their products one day. Then it was $28, and now it’s at $121. I only gave the tip because I didn’t have money to enter the market with, so it was kind of a freebie and a side effect of the EV research I’d been doing for my own purchase of my Nissan Leaf.
Take your time with research. Any stock trade I do would have to be at least a month in the planning phase, like the Apple trade.
Never buy into a company you hate, even if you think you can make a buck. I hate AT&T, but I didn’t know it in 2007 because I was a Verizon customer before I got my iPhone. It’s not so much their fault as it is that I hate all big telecommunications providers now that I’ve learned more about their business model.
If you think you’re doing so hot that you should sell, sell half. That’s what you do when you’re up an ungodly percentage, and you want more, but don’t want to be stupid. If I sold half my contracts that Friday when we briefly considered selling, it would have added $6k to my profits, while not upsetting me if the stock shot up, or making me feel greedy and foolish if the stock plummeted. It’s a psychological concession with yourself, and one must attend to one’s self.
Buy on the rumor, sell on the news. Always sell before the news comes out. If there’s a special event on the 15th, sell your stock on the 14th or 13th. Good or bad, people will probably be disappointed on the 15th. The great part of my WWDC iPhone strategy was the rumor mill. It really gets churned up, and that was the cause for my 2 weeks of straight profits. During that time, the stock is rising off of peoples hopes and dreams. It’s much harder to get a meteoric rise off of hard facts. Could such a feat be pulled again? Not with Apple. The company is now known for its rumor mill and hype. In 2007, it wasn’t. There were no factory leaks, nowhere near as much blogosphere hype, and people didn’t expect anything from Apple back then. This was before people used to liveblog Apple events. I’m not sure people really used to liveblog much of anything before Steve Jobs unveiled the iPhone.
Some more General Advice
Never trade with more than $2k, and only if it’s a surplus. I’ve never spent money I needed in the stock market. That’s just stupid. You don’t put rent, or food money, or savings into the stock market. If you’ve just got back from a family vacation and you’re under budget (as if that ever happens) and you’ve got $2k you’re thinking of spending on a wristwatch, maybe invest that instead. I’m leaning more towards even just allowing yourself that nice wristwatch.
If you’re married or have kids, avoid the stock market as a day-trader or options trader unless you’ve got the disposable income. I’m talking no debt, and a healthy savings account. The things I did, I did as a young man that lived with his parents. I had no bills to pay, and I had a well paying job.
Avoid stock options if possible. Stock options expire. If I did venture back it would be with regular stocks, because they don’t expire and you don’t need to be tied to your smart device to check up on them.
Avoid penny stocks. I’ve always avoided penny stocks, which to me counts as any stock valued under $5 as they’re entirely unpredictable and just a way to lose money which is all I’ve ever heard of anyone doing with them.
Never buy on margin. This goes as a no brainer, but maybe someone needs to hear it. My position is that if you’re willing to buy on margin, you shouldn’t be in the stock market in the first place.
If you want to get hustled, go to a Casino or go to the state fair and play a game. For the love of God don’t let a brokerage firm hustle you. The brokerage firm is the house, and the house always wins.
Stock brokers got this brilliant idea, that they could loan you the equivalent amount of money that you put into a brokerage account.
For example, you have $2000, if you buy a stock priced at $2, you can have 1000 shares. The brokerage firm says, “Hey you’re confident the stock will do well, otherwise you wouldn’t risk $2000 of your own money. Here’s an extra $2000 to buy 1000 more shares, you pay normal interest rates on it, and keep whatever profits it makes you.”
So you go ahead and buy 1000 more shares, making your total position worth $4000. If the stock price jumps up to $4, your position is now $8000, but only $6000 of that belongs to you. If the stock price decreases to $1 your total position is now worth $2000, but guess how much you still owe the brokerage firm? And you’re still paying interest on it until you sell.
Today, the David of 2013 avoids stocks like the plague. See all those rules and lessons up there? That’s advice I can happily ignore because I’m not in the market. Life has enough rules for you to have to worry about a dozen more. To me, the stock market is an exercise in human psychology. It doesn’t represent real value as much as what humans perceive.
I don’t want my kids to trade stock options in school. I want them to be kids. I want them to pay attention in math class, I want them to go to prom and not sit out cause they’re saving up money to start a business. If they want to do it when they’re old enough to open their own account, fine, but having tried it there are far more fun ways to make good money. Namely getting paid to do something that’s fun for you and you’re good at. It was lucrative, but I wouldn’t say it was fun.
In 2010 when the first iPad came out, I was really intrigued by the tech and reminiscing about the good ‘ole days in the market, so I opened an E-trade account with $2k (what is it with the multiples of 2), and downloaded the iPad app (which wasn’t all that great at the time). The idea was two fold. One, to have money ready to pounce on a stock if I got wind of anything that might be promising (it takes time to open a trading account and transfer funds, 3-4 days, so it’s better to just have money ready especially if you’re gaining interest on it). Two, to test out new iOS apps to see how much easier trading is when you don’t have to grab your laptop, a wifi connection, and open up a web browser. The iPhone had the app store by then, but I was more intrigued by the possibilities with the increased screen space of an iPad.
I came to my senses pretty quickly though, and I ended up closing my account a couple days later, having made no trades, and choosing rather the stress free, less adventurous route of a savings account. Why foul up my so far positive stock market experience?
Featured Image Picture Credit: Apple.com
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They never announced the GPS radio↩