Investment Mistake #2 - Using Margin

I don't know who invented such tempting forbidden fruit called margin but ... it is irresistable. I mean what can be better than earning double return when the stock goes up especially if you don't have much of cash in hand.

So what's margin anyway. Basically how it goes is if you have $1000 in cash and you want to buy a $100 stock. Typically you can buy 10 shares so when the stock goes up $1 you get $10 in profit. With margin you may borrow another $1000 to buy another 10 shares so instead of getting $10 you will receive $20 in profit.

Sounds too good to be true right? The upside for this double edged sword is attrative yet what if the stock goes down? You guess right, you lost twice the money as well. And the problem with margin too was that you couldn't really hold the stock for long term unless you have tons of cash to back it up. This is exactly what happen to all my initial $8,000 investment which went evaporated.

So what happened to me was I leverage all my margin and bought about $16,000 worth of stock during the year 2000 - when the market began its slide. The volatile market cut my equities in half so I am left with $4,000? No. Because I bought stocks on margin, so the swift and huge loss caused what's called a margin call. And to cover the call I'll have to put in more money otherwise my investment is worth $0. Right. Nothing. And at that time I had no more cash to put in so I eneded up losting all my investment - the extra cash I have saved for 2 years.

And did I learn from the mistakes? Not for the next few years when until recently I realized that I'm just losing way too much money on investment.

Result of May 16 - Crazy Day

It was a crazy day today with Dow falling as much as 100 points and than stormed back to finish the day with just 5 points loss. S&P 500 also came back to the positive territory with a late run. Overall the day wasn't too bad considering another record setting oil price of $128 per barrow. So why do I call it a crazy day? It's my crazy portfolio. Take a look:

Dow 0.05%
Nasdaq 0.19%
S&P 500 0.13%
Wilshire 5000 0.14%
My Portfolio 3.71%

Up 3.71% on a day where two major indices were down? This is why I call it crazy. Looking at the stocks from my portfolio that did well today than you'll see that is was not a surprise why my overall performance was pretty good today. Despite two stocks losing more than 3% today, I have two other stocks, CSUN and SOLF, both solar energy companies, gaining 13.59% and 23.66% respectively. The strategy of putting shares in alternative energy on high oil price plays well. Here are how the rest of the stock did for the day.

Symbol(Gain/Loss)
ABB(0.77%)
ACM(1.04%)
BRCM(4.28%)
C(2.57%)
CHNR(3.39%)
CPST(2.96%)
CSUN(13.59%)
DAR(1.04%)
FNM(1.12%)
GTE(0.56%)
LFT(0.1%)
LMNX(3.18%)
MPEL(3.74%)
NVDA(2.65%)
SDA(4.5%)
SOLF(23.66%)
Overall(3.71%)

Compare to last week I took profit on Vision Science(VSCI) after 40% gain in just week and switched to Solarfun(SOLF). The strategy so far works as VSCI lost almost 17% since I sold it yet SOLF gained 39.44% so far.

Result Of Friday March 9 - Beat The Market

The market was a disaster on Friday with disappointing earning from AIG. By the end of the day Dow dropped 120 points or 0.94% while S&P 500 lost 0.67% and Nasdaq was 0.23% in the red. The other major index, Wilshire 5000 which represents the actual market, was not far from S&P with 0.57% loss. So to beat the major indices all I need to do was to lose less than 0.23%. Here's how my portfolio did compare to the major indices:

Dow 0.94%
Nasdaq 0.23%
S&P 500 0.67%
Wilshire 5000 0.57%
My Portfolio 0.69%

So I lost 0.69% right? A little worse than S&P 500? No! Actually I was able to pull off a surprising 0.69% gain on the day thanks to 8.37% gain from Darling International(DAR) due to strong first quarter earning. Here are how the rest of the stock did for the day.

Symbol(Gain/Loss)
ABB(0.54%)
ACM(0.54%)
BRCM(0%)
C(2.76%)
CHNR(1.82%)
CPST(0.68%)
CSUN(0.3%)
DAR(8.37%)
FNM(0.65%)
GTE(1.1%)
LFT(1.52%)
MPEL(1.62%)
NVDA(2.64%)
SDA(1.85%)
STO(1.98%)
VSCI(5.74%)
Overall(0.69%)

The biggest surprise comes from graphic chips maker Nvidia which despite posted earnings below the Street's estimate yet still pull a 2.64% gain due to 34% jump in first quarter profit which investors see as a positive sign. The medical diagnosis maker Vision Science continue it's crazy bullish journy with anthor 5.74% gain and push my overall gain now to 43%.

My Current Holdings

Before I talk about the rest of the investment mistakes I made let me quickly give you my current holdings and how they did so far. I will explain the detail of these picks later.

So here they are, my market beating portfolio:

Symbol(Gain/Loss)
ABB(0.16%)
BRCM(22.57%)
C(10.6%)
CHNR(9.7%)
CPST(-1.34%)
CSUN(2.15%)
DAR(16.55%)
EJ(27.89%)
FNM(5.59%)
HOV(1.63%)
LFT(-1.32%)
MPEL(0.49%)
NVDA(9.1%)
SDA(14.74%)
STO(1.84%)
VSCI(40.44%)
Overall(8.87%)

Investment Mistake #1 - Jump In At The Hype

Back in 1999 when I started working my impression on stock wasn't positive. I though of it as gambling rather than investment. During that year I saw Nasdaq went from 2,207 all the way to 4,000 by the end of December.

At the same time I saw how my co-workers and friends were making easy money on high flying stocks such as wireless company Qualcomm(QCOM) and business software maker I2 Technology(ITWO). I2 Technology went from $30 in January 1999 and finished the year at $195, an amazing 500% profit in just one year. And Qualcomm at the same time went from $50 to $177 - an OK 254% gain compared to I2. But don't forget during the same time Qualcomm had a 2:1 stock split in May and then another 4:1 stock split in December so actually instead of $177 it should actually be $1416 - a gain of 2,700% in one year!! This is why Qualcomm is one of the most popular stock during the time.

So seeing how people double their money 5 times to 30 times in a year and then seeing my tiny miserable savings sitting in the back and earning like 2% interest, I did what I thought the smartest move at the time - jump in the stock market and catch the ride of easy money.

So my first ever investment goes to a techology leader at the time - a high flying telecom company called Worldcom.