How I Lost Everything On One Trade (Part III) - Dylan Jovine

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How I Lost Everything On One Trade (Part III)

FEBRUARY 21, 2019

How I Lost Everything With One Trade… 
(Please Note: In this short-term series I share events that actually took place in my life. The names of the people have been changed to protect the guilty).

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The first lesson somebody who invests in the stock market for a living learns is that the market does not suffer fools gladly. Even more to the point: the stock market has made a good career out of parting fools with their money with relative ease. And make no mistake about it – I was a fool when I invested my entire net worth into Comptronix.

A week earlier, I had bought 5,000 shares of Comptronix at roughly $22 per share. The following Monday the stock was selling for $2.43. The company had been cooking the books.

Even worse, I was 6 months away from getting married. Normally that wouldn’t be a problem for a man in his early 20’s who had a bright future on Wall Street ahead of him. But I had to pay for the majority of my own wedding. 

In addition, the $110,000 I had invested was going to be used to buy our first apartment in the city. And my then fiance’ didn’t know about it.  As far as she was concerned I had never made that trade.

Why didn’t I tell her? For two reasons really.

The first is that at the time, I didn’t understand what being married really meant. Intellectually I knew it was a partnership. But in practice, I rationalized that I was still “single” and I was able to do whatever I wanted to do with my cash. I earned it myself didn’t I? (I have since learned much about life and women).

The second reason I didn’t tell her is a reason far too common among Wall Street suckers – I thought it was a “sure” thing. I figured I’d quickly invest the $100,000 and by the time she found out about it, we’d be sitting on a cool million. 

I literally had visions of both of us dancing on the French Riviera while she whispered into my ear what a devilishly clever Wall Street player I was.

And why shouldn’t I have been bullish? I had been given the advice from the Chief Technical Analyst at the firm and he had made millions investing in stocks just like this. In fact, this was his current favorite. He told me that he planned to load the boat up himself. 

How could I go wrong? But it did go wrong – in the worst way.

As I mentioned to you last week I went into the trading room on the Monday morning after Thanksgiving and found out – much to my utter shock – that Comptronix was selling for roughly $2.43 per share.

In one day it was down $20. The $110,000 I invested was worth $10,000 – Just like that.

When my trader confirmed the news I didn’t believe him. I thought he was playing a joke on me. But he wasn’t. So I went to every trader in the room and looked on each and every one of their machines.

They all said the same thing: Compronix had cooked the books. The numbers for the past 3 years or so were wildly inflated. The stock was down 90% before the open.

I was in such shock that I went to almost every single quote machine in the ENTIRE FIRM and checked them. They all said the same thing.

“I have to reverse this trade” I remember thinking. “This just isn’t fair. Who do I call to change this?”

But there was nobody to call. The stock market doesn’t have a “911” number to get you out of a jam.

So I went to the office of our firms Chief Technical Analyst, Dr. Bob Johnston. He was just walking in and talking off his jacket. The conversation went something like this:

ME (panicked): Doc, did you read the news?!!!

DOC (casually): What news?

ME (gasping): The news about Comptronix. There was a fraud. The stock is down 90%! 90%!

Doc gave me a puzzled look and walked over to his quote machine. Doc never lost his cool. It gave me a sense of comfort to know that somebody else who plunged into the stock was as cool as he was. He’d know what to do. 

After reading the news quietly for a few minutes, Doc shrugged his shoulders and said, “Hmmmm….that’s too bad.”

“Too bad”? Was this guy smoking crack?

“What do you mean? What are we going to do?” I asked him.

Doc told me to hold my horses for a moment. He had to first print out a position sheet of every account at the firm that owned the stock so he could call an emergency meeting.

While he played with the computer I walked over to the window and looked outside at the traffic. We were on the 14th floor of the building and had a great view of the South Street seaport.

The view of the people scrambling to work did absolutely nothing to calm me. I imagined that each and every person owned the stock and had the same surprise waiting for them when they walked into their offices. Yikes!

What did calm me down a bit was the thought that I was going through this drama with other people at the firm. I knew several brokers who were going to load the boat on the stock for their clients and others who said that they were going to buy the stock for themselves.

Of course I didn’t get joy from the thought of other people getting hurt by the stock. But the feeling of knowing that other people would be in the foxhole with me – even to just share a beer with – was comforting.

I turned around and walked over to Doc. The sheet had just finished printing. He grabbed it and looked at it. Then he looked at me.

“So, who owns it? Who should I call into the conference room?” I asked him trying to get him to hurry it up. It was 9.15. The market was going to open in 15 minutes. We had to get a move on it.

Doc handed me the sheet. I wasn’t prepared for what I saw next. My name was the only name on the list. There wasn’t one person at the firm who bought the stock beside me. Not even Doc.

When I asked him what the heck was going on he told me that due to Thanksgiving week he hadn’t had the chance to buy it yet. Furthermore, he had to run to an analysts conference up the block so he had to leave. He told me he would talk to me as soon as he came back.

He patted me gently on the back, put on his coat, and walked right out. Just like that he was gone. I was all alone.

I was speechless. I slumped into his chair and stared at the screen. Red flashing headlines just kept shooting across the monitor informing me just how bad the fraud actually was. It was like a torrential downpour of bad news.

It took me an hour to compose myself. During the time I made the decision to sell my stock and take my losses. I felt that trying to win a lawsuit was simply not worth the angst of having to look at the stock every day for the years it would take to resolve the problem.

In other words I thought the cost of a “negative head” would compound the cost of my original mistake. And that was something I could not afford. So I walked into the trading room and sold my entire position. It was the best decision I had made as an investor to date.

What lessons are there to be learned from this experience? There are far too many to list here, but I will share 3 of the most important with you:

Lesson # 1: Stocks are more than intangible pieces of paper.

You see, whether Doc owned the stock or not is irrelevant. He was buying the stock just based upon what the chart told him.

My experience with Comptronix scared me straight. From then on, I needed to know AS MUCH AS I COULD about the business behind the stock. As far as I’m concerned I’m as paranoid as the guy from C.S.I. – I want to know everything so I don’t get caught in a trap.

That’s why I never got caught up in Enron, Worldcom or any of the other frauds of the late 1990’s. Everything has to look “just right” before I invest.

Lesson #2: Consider the Source of any “Tip.”

Everybody has a “tip.” Just the other day, a friend of mine who works in the computer field told me that he knew about a secret deal between a large computer company and a small one that would make the small company the “standard” in the next generation of chips.

I ignored him. And I advise you to do the same. You see, people like to appear smarter than they are. This is not a put-down, it’s just an observation of human nature.

So they give tips as freely as if they were dishing out candy to kids on Halloween. I can say that without hesitation that 99.99% of them are garbage. Ignore them.

The only time you should consider somebody’s advice is when you’ve checked their reasoning AND IT MAKES SENSE TO YOU. Because if it’s a losing trade I assure you the tipster who was so liberal with the advice will button up faster than a pair of Levi’s – and that’s only if he/she REMEMBERS that they gave you the tip in the first place (most of the time people don’t).

AND MARK MY WORDS: If you subscribe to another newsletter and they write a recommendation that’s just a one or two paragraph blurb then it’s likely that they’ve only put one or two paragraphs WORTH OF THOUGHT INTO IT. Is that the person you want to go back to if there is ever a problem? No. All you’ll get is B.S.

That’s why we write such intensive reports here at Behind the Markets each month. We want you to SEE what it is that WE SEE when we like a company.

We’re paranoid. Cautious. Slow. Old-Fashioned. And whatever other adjective you want to throw at us.

Lesson #3: Handle Conversations with Significant Other “Like a Man.”

Sure, our financial loss was devastating. That’s why I took out my fiance’ for dinner and planned to give her the news like a man. Instead I got drunk. It was only when we got home, and I fell onto the bed in a drunken stupor, that I confessed what happened. 

The last thing I saw before I blacked out was a look of shock on her face. In both my professional life as well as personal life I sure had a lot of growing up to do…

God bless you and your loved ones,

Dylan Jovine

The Buck Stops Here

Behind the Markets

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