Dear Reader,
Today I want to talk about how I lost everything on one trade, and how that really impacted me as an investor.
When I was really young I started working on Wall Street.
Before I was even heavy into sales I was working as an assistant part of the day to a technical analyst.
This was back when Wall Street didn't have all these fancy computers. They had these little yellow-green Quotron machines.
And the analyst would get in these charts from William O'Neil's chart service.
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My job was to take a pencil and update all these charts – hundred and hundreds of them – each week, by hand.
So I'd look at the chart, and if the stock was at $51 I'd have to re-mark it to $52.50 if it went up that week, or down to $50 or $49 if it went down. And I sat next to this analyst and did all these by hand.
Now, I've always been a skeptical guy by nature; it's just my programming.
I always related to the George Soros quote: "I'm not a security analyst – I'm an insecurity analyst."
I look for everything that can go wrong before I act.
But I'm filling out these charts week after week, and I'm watching my boss recommend a stock to the firm and the stock goes from $20 to $50 and everybody makes money…
And then his next one goes from $20 to $30 and everybody makes money…
The next one goes from $10 to $15. And so on.
He's on fire.
And then he says to me, "Oh – this next one – Comptronix – this is going to be a big, big winner."
Now, I'll never forget this –
I had been waiting on the sidelines the whole time.
And he says to me, "this Comptronix - $22 and three quarters – you gotta get in on this."
I had saved up $117,000. It was all I had.
I bet it all.
I bought $5,000 shares of Comptronix.
And I walked away… $22.75 – I'll never forget the print.
I was so nervous. I'd watch it go up a little, then I'd watch it go down. Again, it was all the money I had.
And I remember coming into the office, probably 10 or 12 days after the trade settled…
I'm the first one there (always, still true) – it's early, dark outside – I'm drinking my coffee, unwrapping the bagel I got from the bagel stand…
I walk over to the Quotron machine and I type in Comptronix – "C-M-P-X."
The price comes up on the Quotron machine and it says, $2.25.
And I say, "What? That must be a mistake. $2 and a quarter!?"
So I walk around to like five other Quotron machines…
Remember, it's still early, it's dark, I'm in this gigantic brokerage firm with machines all over the place, by myself.
I'm walking and I'm looking at all these machines and I'm typing in Comptronix – "CMPX."
And they all say the same thing – "$2 and a quarter."
"What?! This was $22 and three quarters last week – what the heck is going on here?"
It turns out, there was fraud at the company.
I remember running into the trading room when people got to the office and I was like, "How do I reverse the trade?! How do I reverse the trade!?"
And they're like, "there's no reversing this trade. It's yours. You own the stock – you're down, wiped out." Boom. Just like that.
I lost everything on that trade.
I was so stung by that loss – I was so shocked at that loss…
I started asking myself questions.
[First, where was the big shot who told me to buy this thing? He was nowhere to be found. He was avoiding me at all costs knowing what I put into it. He was hiding under his desk!]
I needed better – so I asked myself:
Am I looking at this game the right way?
Who plays this game at the highest level?
How do you do this?
How do you avoid getting shellacked like that?
That got me to start asking myself those types of questions.
And of course, I landed on Warren Buffett.
What Warren Buffett taught me is not to look at the little charts, because the charts are basically telling you something six months after the business can tell you.
The business is going to tell you something before the charts do. The charts are just reacting to the business.
Buffett's attitude was, squiggly line theory is just a simple way to find out something that you could have found out earlier if you looked at the business.
I started reading all his shareholder letters.
And let me tell you something – my mother's an accountant, so he was speaking a language that I understood! That was like a revelation to me.
Losing that trade hurt. But it was the best thing that ever happened to me. God had a bigger plan.
It got me to learn how this game is played at the highest level.
It got me to learn how to look at investing as a way to analyze a business, as opposed to just trading some intangible piece of paper.
And that has been VERY beneficial.
Members of ours know that that has been VERY beneficial for them too, if you look at our track records over time.
[My "Skim" method, which is the one short-term trading strategy even Warren Buffett uses, has a near-100% win rate for 4 years running. You can get it here.]
And I'll tell you another thing:
Unlike my former boss, I will NEVER hide under my desk when a trade I've recommended goes against us.
I promise you that.
I know there are a lot of people out there, a lot of our competitors – I won't mention their names – who ignore the losses...
It's like the Mike Tyson line – everyone has a plan till they get punched in the face. They'll never talk about a losing position.
I promise you – that will never happen with me.
Win some, lose some. But when we lose some, I won't hide under my desk.
Anyway, I just wanted I wanted to share some of this experience with you and wish you a happy Monday.
This week I am heading out to our Ohio office and I'll bring you along with me.
Speak soon – have a great day.
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