Waiting for the Nq's may be a bit of a wait. So I'll post an old column. It's that or wash the kitchen floor.
DAYTRADING: The Highs and the Woes 1/18/03
There’s a line in the movie “Terms of Endearment”: Jack Nicholson is walking out of an airport. He ‘s out the door, heading for his car and freedom from a difficult, emotional involvement. Shirley MacLaine hustles through the doors, and with a few determined strides catches up to Nicholson. Jack shrugs, says, “A few seconds from a clean getaway.” He capitulates, as most men do, because women are stronger than men.
I was but a kilometer from my Saturday morning session with doc Kronkite: from the waiting arms of the lovely Miss Tushbumper. I had reason, many reasons, to continue to the doc’s office. Instead, I pulled over to the road’s shoulder, u-turned, and headed back.
Some things were more important.
On the ride back I ruminated on the boys in the coffee shop where I go every morning at 5:30. It’s a regular group; five or six of us sitting around a table talking sports, politics, town stuff and stocks. The boys, men really, are
heavily into stocks. And to a man, they are investors.
I am the only trader. I am the only technician; the only one who looks at charts.
They all think I am madder than the Mad Hatter.
They buy the company, never the company’s stock.
I try gently to point out the difference, but they are not swayed. Never.
One wag, and this was a couple of years ago said, “Did you see AMAZON’s revenues? They’re going through the roof! I’m going to buy more
AMZN. It’s a steal at $110, don’t you think?”
“Revenues don’t mean much to me unless they lead to profits.
AMAZON may be making a double top up here. It looks lower to me,” I said.
“You get that from your charts?” he laughed, while the others joined in with knowing chuckles.
“Yes,” I said, holding my ground.
Another fellow, well educated, a renaissance man, battles me daily. I’ll bring him a chart that suggests a move from say, $3 to $5. It happened to be RII. “But that’s only a two-dollar move,” he’ll say.
I’ll counter by saying, “Sure it’s only a two dollar move, but it’s also a 67% gain.”
“Percentages don’t matter,” he says, repeating his market mantra.
I try to shake him of his notion, but he is unshakeable.
Most of the boys down at the coffee shop have carried their stocks down the deep rabbit-hole the past couple of years: EMC, a great favorite, as the company is headquartered not far away, from $100 to under $6. INTC from $60 to $15: and many more.
They’ve seen their portfolios melt faster than the Wicked Witch of the West when Dorothy tossed the water; seen their 401k’s and IRA’s and portfolios reduced to a fraction of their former worth.
Undeterred, they say to a man, “I’m not worried. These are great companies. They’ll come back, they always do.” These are not young men. I do not mention that it may take decades, if ever, for these, “great company’s” stocks to come back.
It’s tough to let go of long-held notions.
It’s tough to say, “I’m wrong.”
It’s tough to take the loss, an admission that the decision was wrong.
It’s tough, because nobody likes to take an ego hit.
Things are not always as they seem. Like Koko in the Mikado, who had a Little List, I have a Little Test: a test about perception. Take the test; it won’t hurt.
1. There’s a big pond. In the pond there sits a lily-pad. Every day the lily-pad doubles: So on day one there is one lily-pad. On day two there are two. And
so on. On the 30th day the pond is full with lilies. Question: On which day is the pond half-filled with lilies?
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Answer: Day 29. Most testees choose day 15. But because the pond is full on day 30, on the prior day, the 29th day, it is half full. And because they double each day the pond is full the next day, the 30th.
2. You’re an amateur pilot. It’s a beautiful day. You climb into your Cessna and head for the wild blue yonder. After an hour you radio crackles. It’s the tower, informing you that a thunderstorm is heading your way. You want to keep flying. Question: Do you fly above the thunderstorm; fly below the thunderstorm; fly around the storm; fly through the storm, or head back to the airport?
Answer: You head back to the airport. The reason? You are an amateur pilot. Amateurs are foolish to take the risks of a thunderstorm.
3. Capital invested at 6% will double in how many years? 12 years? 24 years? 50 years? 60 years?
Answer: 12 years. To determine this try the ‘Rule of 72.’ Divide the interest rate into 72. 6 into 72 is 12.
4. You buy a stock at $20 and drops to $10. How much must it rise for you get back to your break-even at $20? 10%? 100%? 50%? 150%?
Answer: 100%.
5. Your broker calls. Says, “I’ve got a terrific stock for you. Our research department loves it. It’s selling at $7 and their target is $30, and maybe higher. It’s going to fly; revenues will double in 18 months, and they will announce a new product today. You buy 2,000 shares; you buy 5,000 shares; you short the stock; you hang up the phone.
Answer: Thank your broker, tell him you’ll get back to him shortly, and hang up the phone. He won’t mind that you don’t call back; he’ll be busy calling his other clients.
6. What is the percentage of consistent successful investors? 25%? 6%? 45%? 65%?
Answer: 6%. Actually, it’s 5-7%.
7. You’re a daytrader. You buy a stock at $30. It backs off to $26. Do you buy more, average down and reduce your cost basis? Hold the stock, convinced it will come back? Sell the stock?
Answer: Sell the stock. You are a trader and the trade has gone wrong. Take the loss.
Lee Kramer
Copyright LSK, Ltd. 01/18/03
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