What My Grandfather Taught Me About Trading
Evan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
"Pop-Pop" used to let me read him the scrolling tickers at the bottom of his television screen. It was one of those early projection beasts with three gigantic bulbs (red, blue and green). He would call out a few symbols, and I wouldn't blink until I saw one pass pass and yelled out their current share price. I was around eight years old at the time, didn't have the slightest idea of what the letters and/or numbers meant, and was completely intrigued.
My grandfather set up a trust fund for me, and when I turned eighteen it was off to the races. I'll never forget my first trade; I bought and sold Nvidia (NVDA) within two weeks and made approximately $6,000. I don't have to tell you that was quite a haul for a Senior in high school. Pop-Pop was extremely proud, and his broker (who inherited me as a client) asked me how I knew Nvidia would perform so well. "I really like their new graphics card," was my reply. I was an avid PC gamer at the time, and their newest product had a cool looking box. How was I suppose to know they were about to nail their earnings the week after I bought? Our conversations about which stock was the next "big one" would continue until my grandfather's passing nearly two decades later.
I've since begun doing a bit more research on companies I plan to invest in, and save quite a bit of money by not using a human broker. Having traded equities for nearly twenty years, I've learned a few things.
1. Every great trader occasionally loses his shirt.
If you were ever to ask my grandfather how he had done in the market over the years, his answer was always the same. "I've made some and lost some. In the end I'd say I'm about even." While that may be true, I know for a fact some of his losses were staggering. If you're reading this, I'm sure you can relate.
The internet is filled with gurus claiming wild % gians year after year. While there may be a few *Timothy Sykes' out there, the majority of traders go home empty handed. Or worse. I make it a habit to trust traders only after they've told me about their worst investment.
2. Never invest from the advice of a talking head.
Watch Jim Cramer's Mad Money. Read every Motley Fool article that gets published. Just don't blindly follow "professional" traders with your hard earned income.
I have fallen prey to some well respected opinions in my time, but cancelling out the noise and burying my nose in 10-k's and quarterly statements has profited more often than not. But alas...
3. Financial Statements can be misleading.
I have been burned several times investing (and trading) in what appeared to be stellar business models. Companies putting up amazing numbers, keeping promises to shareholders and paying good dividends. Still, one word has the ability to trump all the wise decisions a business has made since its inception. One word can turn riches to rags before you can log into your trading software.
In short, a "sure thing" doesn't exist on Wall Street.
There are many more lessons knocking around in my brain, but I'll leave you with these three for now. Sorry I couldn't be your Magic 8 Ball and tell you Vringo (VRNG) will reach $100 after being awarded a Cease and Desist order against Google (GOOG) next month. It's just not that easy.
Like this article? Let me know by answering the following question in the comment section below: What are you currently trading?
I am currently long VRNG. It is a speculative play. I have done a fair amount of research on the company and its current legal battle with Google, yet still don't have the slightest idea of where Vringo's price per share will be in the coming days/months/years.
Timothy Sykes focusses mostly on penny stocks. He claims to have turned 12k into more than 2 million within a few years by trading "pump and dumps." I have followed him since 2007, and even though I believe in his claims and strategy, I have yet to make more than a couple thousand on any one of Tim's trade alerts. And if you asked me how I've done overall using his strategy, I would simply say, "I've made some and lost some. In the end I'd say I'm about even."
End of disclosure.