How I Lost Everything On One Trade (Part II)
- Feb 26, 2019
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).
The date was Monday, November 23rd 1992. Thanksgiving Week. Wall Street was a ghost town.
As I made my way through the canyons of a deserted Wall Street, Frank D. came to mind. Frank was one of those characters you only get to meet on Wall Street. A tailor who fitted people for custom suits right at their desk, the only thing more impressive than the suits he wore was the dark mane of hair that rested on the shoulder. He counted some of Wall Streets biggest traders and CEO’s as his clients.
To hear him tell it, his 20 years as a Wall Street tailor taught him that there were two types of people on Wall Street: people who gave orders and the people who took them. The difference? Order takers wore shirts with pen pockets. Order givers wore shirts without them. And since order takers didn’t pay the bills, you’d never see him around during the holidays.
When he first told me this I laughed at him. I was sure it was just a sales pitch to get me to cough up the money for a new suit. But to hedge my bets I bought one of his pocketless “order giver” shirt. Who knows? Maybe the boss would notice.
And on that particular Thanksgiving Monday I strolled into the office in my brand new custom Frank shirt, which had been delivered just the day before. I might not have been a boss just yet, but I showed up ready for business.
As soon as I walked in, I glanced at my pocketed brethren – four other rookie brokers who were sitting around chatting it up. I smiled at them and made my way to the trading desk to make sure that there was a trader present. I had big business to do.
As I mentioned last week, our Chief Technical Analyst, Dr. Bob Johnston (“Doc”), had told me about a stock he loved the Friday before. The name of the company was Comptronix.
By now he had presented his findings to the entire firm. And during his presentation he’d highlighted his investment philosophy by telling the group that the stock had the two characteristics he looked for in a real winner:
1. A Strong Chart: The price of the stock had been in a tight trading range for a year and was now “breaking out” on heavy volume.
2. Good Fundamentals: Doc reasoned that the reason the stock was breaking out for the company was because sales and earnings exploded over the prior quarter.
Now you have to remember – Doc was a technical analyst. He made investment decisions based on stock charts and price/volume movement.
Although fundamental analysis played a role in his analysis, it was a small role. Doc reasoned that stock charts followed fundamentals. Thus, if a stock was moving higher it had to be because the fundamentals were strong.
In other words Doc believed, as do most technical analysts, that you don’t need to study the fundamentals of a company. The stock price tells you everything you need to know about the fundamentals.
Of course I couldn’t argue. I’d just gotten my first job and I barely knew the difference between a “10-Q” and a “10-K.”
What I did know was that Doc was worth – by some estimates – close to $100 million dollars. I knew he’d shorted the stock market in the weeks before the 1987 crash. And I knew that the $75,000 Patek Phillipe watch he wore to work each day gave his opinion on all matters investing more weight than mine. (He literally wore a $10,000 Cartier watch on days he had to visit what he considered a “bad neighborhood.”)
That’s why I spent the entire weekend studying Doc’s favorite stock, Comptronix. I checked the chart. I read all the news I could find. Everything looked golden.
And then on Sunday I went through my bank account and savings and took a long, hard look at all the assets I had to my name.
I had about $120,000 in cash. I don’t come from a wealthy family or anything. I had just saved my whole life and was saving almost everything I earned from my new job.
Since Comptronix was selling for roughly $22 per share I knew that I could comfortably buy 5,000 shares and have a little cushion left over.
My thinking was simple: If Doc was right, as I believed he was, than why not take full advantage of it? And if I believe him to be right, then why waste time with 500 or 1,000 shares? If somebody is right they are right – the size of the trade is irrelevant. Wouldn’t it be a sin if I didn’t take advantage of this wonderful information at my disposal? So on that very Monday I walked in – pocketless shirt and all – with the intention of buying 5,000 shares of Comptronix.
But there was one catch. I was getting married in roughly six months. And although my fiancé and I weren’t yet married, we knew what each other had in the bank and if I lost 90% of my money than that would be a problem when we sat down to buy our first apartment. Nothing I couldn’t handle I thought to myself.
By the time I left work that Monday I was the proud owner of 5,000 shares of Comptronix at roughly $22 per share. By Tuesday the stock was .50 cents higher.
What did I do? That night I decided to take the rest of the week off. And why not? I was well on my way to becoming a player. Working during the Holidays was for “order takers.” I was on my way to giving orders now.
As long as I live, I’ll never forget what happened next….
When I came in the following Monday – the first day back after the Thanksgiving weekend – I sat at my desk and read the news as I ate my breakfast. Suddenly, something on the quote machine caught my eye.
It was Comptronix.
But instead of selling for $22.50 per share, the quote machine said “$2.43” per share. Two dollars and forty three cents per share? That must be a mistake. Must be a problem with the machine.
I went to the trading desk. They had access to pre-market trading and news that I didn’t have on my machine.
It wasn’t long before I stopped looking at the quotes and started reading the headlines. “Accounting Fraud” the tape dispassionately read. Management of Comptronix had been cooking the books. Accounting fraud indeed.
I lost 90% of my entire investment that morning. 90% of all the money I had to my name.
I’ll never forget the feeling I had. I actually wanted to reverse the trade. For some reason, I felt shocked that the trade was so final. It was utterly bizarre.
Next week I’ll discuss what I learned, how I recovered and how I broke the news to my then-fiancé.
(Continued next week)……
God bless you and your loved ones,
The Buck Stops Here
Behind the Markets