Friday, December 31, 2010

The Year Ahead, and Times Gone By

I was going to do a somewhat witty cynical prediction list for 2011, with some serious thoughts thrown in but most everyone has rolled out their 2011 predictions so why be like everyone else?  Instead, as a very big year approaches (and a chapter closes) I thought I'd steal a page from a few guys who have written some excellent commentary of late.  If you are not reading James Altucher's blog - The Altucher Confidential - he does a great job of personalizing his life experiences into financial lessons, or even life lessons.  It is some compelling reading and he brings a lens to his life everyday - something I'd find difficult being a much more private person.  Josh Brown over at The Reformed Broker who normally writes in a style similar to mine, went much more introspective in a post yesterday, discussing how 2010 has been a turnaround period in his life on so many levels.  We are 'twitter friends' and do quite a bit of online chatting back and forth, so I was surprised to see what a tumultuous year he had.... but his current path is upward in a big way.  So like Josh, I'd thought I'd take a break from the norm and talk about some of the journey, as it helps to personalize people in a world awash in commentary.


It all started in 197..... wait, I won't go that far back.

I was always fascinated by the market

I don't know when I first started getting into 'the market' but at least as far back as the teenage years it held an interest for me.  Being an analytical type, as a teenager every September I'd look forward to Kiplinger's mutual fund review where they had these massive tables of mutual fund results.  I am pretty sure I was using Lotus 1-2-3, because this was before MS-Excel hit its stride - but I'd look over those charts - find all these best 3 year, 5 year performers - type in all their data into a spreadsheet, sort 'em, analyze 'em, sort 'em again, print them, study them - oh it was fun.  Thankfully the Facebook was not around.  This was before the days of the internets (sic), so magazines like Kiplinger's and Money, and those huge bulky Morningstar "books" at the library was all you really had to research.  So once I had the 'best funds' I could not wait to get to the library to leaf through the Morningstar profiles to see what stocks they held, the fund history, and such.  And no, I did not wonder why I was the only kid at the library vying with tiny men with white hair for those Morningstar books behind the reference desk - but I am sure the librarian did.  So while we did not have the internets, we did have computers - probably the early versions of PCs since I don't think the Commodore 64 could handle spreadsheets - but my memory is fuzzy.

The college years

Eventually I graduated and headed off to Ann Arbor for college where other matters became more pressing - such as a somewhat real life.  I still read the magazines in my free time, but academic and social activities were more the focus, so the investing life was dialed back but never far from mind.  I was one of the first people to get email (had to go to 4 buildings to get it accomplished) but the internet was new and fresh and a huge time sucker for someone like me who is a data whore hog. I am sometimes asked why I did not go into a career in "investing" out of college since it was a passion ... probably much of that was comfort level.  I had no idea where to begin and Michigan is not exactly a hotbed for the investment world ala a NYC, Chicago or Boston.  Being simple minded (what do most 18 year olds know about their future?) I initially picked a career path by process of elimination and what was a clear path.  For example, if you are going to be a doctor you go the pre-med path.... if you are going to be a lawyer you go the pre-law path... if you are going to be an accountant you go to the business school.

I didn't want to be any of those things, but I liked chemistry.  So I came upon the great idea I'd be a chemical engineer.  Didn't know much about it, but I saw in the tables it was well paid and if I could do "chemistry stuff" how bad could it be?  Well I found out it was bad.  It started out ok - I took all these fancy classes that were filled with future engineer or doctors - Calculus I, II, III.... Organic Chemistry I, II.... Physics I, II.   Uhh, I thought college was supposed to be fun?  Long story short - there was a lot less chemistry and a lot more upper level math/physics which were not my favorites - differential equations anyone?  By mid sophomore year I saw this was not for me - I was not passionate enough about this line of work to continue, but now I was stuck.  At Michigan, the undergrad Business School is a 2 year program that you apply for - it's own entity.  I did not even have enough "humanities" to apply at the time, so 2nd half sophomore year was full of (ahem) less rigorous classes.  Got my only A+ during my college career - Anthropology 101 - compared to the heck I had been through the first 3 semesters this was much more palpable.  Then I had to apply for B-school, but I knew my GPA was going to be worse than most due to the type of classes I had taken. Rather than rejecting me right away, they were kind enough to wait list me until right before the fall semester began... and then they rejected me.  Leaving me scrambling for classes - and which direction go.   So I decided to make a hybrid program for myself.  Economics was the only "business" type of major in the "Humanities" part of the college, but I would take a year's worth of applied business (accounting, finance, marketing) - with no credit earned mind you, since I was not part of the business school.  Hence my 4 year program became a 5 year program... but at least I could get a job in a state where Econ majors are not exactly in high demand - we don't have many think tanks in Michigan.

Off to work life

So I had my degree which I feared somewhat useless on a resume if my eventual plan was not to be a professor - but at least had some accounting classes so I could highlight that aspect of my 5 year sojourn.  I was not ready to leave the state since I enjoyed the comfort level of being around family, so I did not utilize the full scope of the career placement - many of the recruiters were from out of state anyhow and most of the jobs I were interested in, were going to those darn B-school kids.  So I found my own way after graduation and ended up in a starter accounting job in a manufacturing business (what else?).  The work was relatively simple and somewhat repetitive, and I stayed far too long in a low paying job - even my boss was telling me to leave (politely) as this work was below me.  In retrospect it was probably the best workplace I ever had - which was a curse - hard to leave an environment you really enjoy.  There were people there 10, 20, 30 years older who I enjoyed - you don't realize how hard that is find until you churn through multiple jobs in life.  In that time, I  found some guys there who were really into the markets so I rekindled my love affair with the markets, but this time mutual funds were out and it was equity time.  I opened my first brokerage account and could place trades electronically via phone!  How cool - of course this was right before the explosion of online brokerages.....this was mid to latter 1990s.  Well me and my work friends - one guy in particular - became geniuses in the late 90s (you too? what a coincidence)  We traded NASDAQ stocks - heck you put the buy in at 10 AM, go do some work, and at 1 PM you check in and you were up 8%.  4 out of 5 days a week - this stuff was easy.  Me and my much older friend even discussed opening a hedge fund as he had some dough, as did some of his friends.  How great that would have turned out.  (!!!)

So like any genius in the stock market, I was not content with just making 80% in 5 months, I was learning about options - yeah!  I tracked options and saw when I bought Athome Networks and it went up 18% in 3 days I could have made 90% if I had bought calls instead.  My path to being a millionaire would be cut by 80%.  All I had to buy the dip, any dip.  Late 99 was the best... the NASDAQ went from 3000ish to 5000ish in just a few months.  Holy smoke - I started to dabble (I did not inhale the options) in calls... and it worked pretty well.  Then February, March 2000 came along and finally a big dip.  All I needed to buy this one and in a few weeks I'd be doing things unheard of in my little part of the world.  Uhhh.... well let's say buying the dip did not work out so well in 2000.  Crash. Burn. Fail.   You lose! You get nothing! Good day sir!

And so a good few years of building up went up into flames in a few months in the options markets.  Lesson learned.  Tuition extracted.  Market player humbled.

Eventually I took the boss's advice and moved on to another company and more fruitful opportunities - and out of accounting (snooze) and into finance, which suited me far better.  And others after that moving up the food chain. It definitely took me a few years of relative hiatus (2001-2002) from actual heavy duty market activity, to get over being burned so badly and still to this day I wake up every day thinking how I can not lose money, rather than how to make money when devising strategy or trade ideas.  Which is why 2008 and early 2009 - while crazy in it's own right, was not particularly game changing on a personal level - I had already lived that nearly a decade earlier and it had never left the conscience.  As the years passed, I continued to watch and read up on the market and now had the internet to supplement my learning curve.  I became scared of what little I knew "back in the day".   But over the years I tried many things - from penny stocks, to buy and hold (did I mention snooze?) to fundamental analysis to technical analysis.  For most of this time, I thought being purely analytical would put me at the top but if that was the case engineers and statisticians would dominate the charts of the world's best investors - they do not.  Patterns, sentiment, human emotion - all of these became things to learn.  Sometimes I'd be active in the markets, other times I would not do a trade for many months as I had a career of course.  Some things worked, some didn't but it was all a learning experience.  I honestly did not mind losing money (too much!) since it was my own; paper trading just was not for me; I learned better from actual pain - whereas if I lost someone else's money (even in a mutual fund recommendation for someone's 401k) it would tear me up.  Which apparently is the complete opposite view that Wall Street takes as other people's money (OPM) is a plaything... ugh.  But I digress.

Follow the dream

By 2005-2006 I had settled into a strategy that was a hybrid of technical and fundamental analysis and worked for me.  I always tell everyone what works for me might not work for you - find what suits your temperament and ability.  It took me a long time to find a sweet spot and even then I did end up leaving a lot on the table with my style as I usually only had 5-6 stocks, and once I got a nice move in 1, I left the stock trying to find the next idea - often to see my old idea continue onward and upward many more tens of %.  So I often wondered what I could do with much more capital where I had many more positions, and I was able to leave a pot of money in older positions while still having money to put in new.  If I only I had a mutual fund or something!!

While I enjoyed the work I did it was never a love.  I'd come home in the evening and spend hours researching companies, reading market websites like (CBS)Marketwatch, Yahoo Finance,, message boards, etc - blogs were really not part of the big picture then other than the first wave such as Barry Ritholtz's The Big Picture. But I could read and research about markets for hours on end.  There had to be a way to get this as a career.  They say do what you love and you don't work an hour of your life.  Should I just pack up and go to Boston or NYC and start as a runt again from the bottom ladder?  Did I want to do that at my age, not knowing it would ever truly pay off?   I saw the story of the 'red paperclip guy' - he started with a red paperclip and through a series of trades, eventually got a house.  Was this applicable to me?  Not in the direct sense but if that guy could pull that off maybe I can pull off a crazy idea.  I had a decent investing skill set, not the best, not the worst - and I had a decent writing skill set, maybe I can use the internet to marry a skill set with capital.  Worst case scenario I'd give it a year or two, and waste a lot of time.  All I needed to do is find a way to outline my thoughts, trades, ideas, and views... and have a transparent tracking mechanism held by a 3rd party to showcase my portfolio.  (ironically in the past few years, a few services have sprung up to do just these things - I was a few years early to the foray)  I did the homework, I learned what a blog was and how to do it (sounds simple now but they were not all the rage in 2007), I researched who could hold my portfolio so others could view it, and away I went in mid 2007 - perfect timing for the tsunami the market was about to embark upon.

After quite a few years of trial, tribulations, hits, misses, and literally thousands of hours of my life vaporized chasing my goal - here we are.  So that's how *this* came to be and after paying years of dues, I look forward to the next chapter of the book in 2011.  Much like when I started this site, I won't know how the next step will turn out, but I expect to look back in a few years in wonderment at all that has happened during the journey  Have a great new year's.

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