This story is part 3 of my trading lessons series.
Back in my early trading days, I thought nothing bad could touch me. After turning a small sum of $7K into more than $500k in just a few years, I was on top of “trading nirvana.” This was “it” for me, and while it was far from a fortune I could live on for the rest of my days, I certainly believed it was a great start.
As I learned, the trick to staying on top is to handle success wisely. Do not become stubborn, greedy and full of hubris. You will freeze up and panic at the first sign of trouble, and it is also likely that you will ignore warning signs – believing instead that you are made of teflon and can repel danger.
Yes, it’s easier said than done. When you ride a bubble and make a tremendous amount of money, it is tough to leave the party. Who would want to? But, unfortunately, that choice is not often made voluntarily. For me, the ride started to shake at the start of 2000, and it came to a very rough ending the following summer.
After barely making it out alive during the spring of 2000 (Nasdaq dropped 26% during one week in April!), I was determined to move ahead. This bit of a correction was not going to bother me. After all, it took me 3+ years to build a nice fortune – how could I lose it in just a few short weeks?
Trading Lessons: Greed and Hubris Will Destroy Your Portfolio
As we headed into summer, Broadvision (BVSN), a stock that I had tracked for years, caught my eye. I had amassed around 7,000 shares in early 2000, and now Broadvision was starting to move nicely higher. I had only a handful of other names in my portfolio, and after the stock market carnage, only one third of my nice account. I decided that Broadvision was the horse I would ride to the finish line.
In July, the stock was in the low 50’s. I was still on margin with this name but feeling quite confident. One Friday morning, I turned on my computer to find the stock down $7. I was horrified! It had to be a mistake, right? I scoured the Internet for news, but could find nothing. It was about 90 minutes before the open. On CNBC, I could see BVSN steadily losing ground every time it scrolled along the ticker. I was beside myself, and with no protection on, I started to calculate the loss in my head. At the same time, I began muttering to myself, “Calm down, Bob. It’ll come back. Just be patient.”
When the markets opened, the stock was down $9. It sold hard the rest of the day. Broadvision had lost a contract to competitor Art Technology Group, and that news was enough to sink the company 20%.
But I held on – and the pain only got worse. I ended up selling all my shares at the end of the day. By then, the stock was down $13.75. I lost nearly $100K in one day on one stock. It made for a difficult but reflective weekend.
Lesson learned: Too much exposure in one name (aka, no diversification), trading on margin, and not having protection in place are all no-no’s. Even though I learned these extremely expensive lessons more than fifteen years ago, I still credit them with making me a better trader today.
Copyright: alexkalina / 123RF Stock Photo
