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A very interesting story from a newbie stock "player". This
is the little person experience, full of greed and nakedly
honest. I'm sure there will be more to come.
The online version of this story doesn't have the table with
her trades in it, which is too bad. All of the 28 trades in
the table are the usual name "mo" stocks (CMGI, DCLK, HLTH,
INKT, RBAK, etc.). Without fail, every single trade (closed
or open) is underwater! Every single one of them! She says
she has learned a lesson. One can only hope that others
have also...
JW
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http://www.examiner.com/000416/0416firstperson.html
Fantasies railroaded by Market Express
By Marianne Costantinou
OF THE EXAMINER STAFF
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No fair.
I had climbed aboard the Stock Market Express just 10 days
ago for what I had imagined would be a quick trip to the
Land of Riches.
But no sooner did I settle into my seat to enjoy the ride
than my train got derailed. Now my caboose is all banged up.
On Friday, the Dow had its worst drop ever — EVER! —
plummeting a jaw-dropping 617-plus points. But my fantasies
were riding on the Nasdaq, that locomotive full of
high-speed tech stocks whose trips to stratospheric prices
had reached dizzying heights.
Everyone was getting rich. I wanted some of that easy money,
too. So when my parents gave my husband, Marty, and me their
hard-earned savings so we could put a down payment on a
house, we promptly invested it in the stock market.
Of course, I pop aboard and Nasdaq has its worst week ever —
EVER! — dropping 25 percent in five days, 355 points on
Friday alone.
As if that wasn't bad enough, I fared even worse than the
market. I'm down more than 40 percent.
I've lost 28.71 percent of the cash I paid for the
"bargains" I bought the week before, during a deep dip in
the Nasdaq.
And I also lost the 13.45 percent profit I had smugly made —
at least on paper — by April 7, after just three days of
scavenger-hunting. And, and, I took a 20 percent hit on four
stocks I sold in disgust early Tuesday morning, irked at how
quickly they had dropped at the market's first shudder.
Little did I know that those four wimpy stocks were an omen.
Normally I thrive on stress. But by midweek, my free-falling
stocks had so unnerved me that I ended up in the hospital
emergency room, convinced I was having a heart attack.
I wish I was kidding.
Despite my panic, I had faith that the market would
rebound — as it always does — and that my family would, one
day, make gobs of money.
I had pulled all-nighters researching our stock picks,
gleaning tips from friends and from the news clips I had
hoarded, just waiting for some cash to plunk down and get
rich quick.
My parents' modest savings, too little for a down payment in
this crazed real estate market, were to be our ticket.
Hard lesson
I probably would not have been in heart attack mode if I
hadn't done something that was stupid, even for me.
Especially for impulsive shopaholic me.
I bought stocks on margin.
Until I started with this stock market business, I didn't
know much about margin. I had heard of it. I knew it had to
do with buying stocks on credit. And I knew it had gotten
folks in trouble.
What I didn't know was how easy it was to get into big
trouble real fast.
My credit cards are always maxed out, testimony to the
weakness I have for bargains. I can't resist them. And if
there's a time limit — a "Get It Now! It'll Be Gone
Tomorrow" urgency — like a sale or an auction, then i'm a
goner.
The stock market brought out the worst in me.
Now, when you try to use your maxed-out credit card for one
more irresistible, just-gotta-have-it bargain, something
happens: It doesn't work. There you are, standing at the
counter, and the clerk hands back your card with a sorry
shake of his head. And off you go, embarrassed and
disappointed but not facing financial ruin that will destroy
your life, for God's sake.
But when you play the stock market, there's nobody to say,
"Forget it, buddy" or "Sorry, ma'am." You can buy and buy
and buy using your margin, which is like an automatic credit
line that uses your stocks as collateral.
You can usually borrow up to 50 percent more than your
stocks are worth at the moment you spend the money. If
you're lucky and you bought right and Nasdaq is sky high,
you're making zillions, with only the 10 percent annual
interest to worry about for the money you spent on margin.
The problem is that if the stock market takes a dive, your
stocks are worth less, which means the total dollar amount
you can float on margin shrinks, too.
Here's an example: Your portfolio is worth $100K (I wish!).
That means, if you're feeling cocky or greedy or crazed, you
can buy another $50K in stocks (50 percent of $100K) on
margin. You now have $150K in stocks.
But, suddenly, the market takes a nose dive. Your portfolio
is now only worth $50K — and your outstanding debt on margin
can only be 50 percent of that, or $25,000 total. But, oops,
you had already gone ahead and spent the $50K when your
portfolio was worth twice as much. You are now overextended
$25K.
The brokerage calls you up on what's known as a "margin
call." They want that $25K and, unlike a credit card or a
traditional loan, you can't eke out the payments for months
or even years. They want the money NOW, before stock prices
keep plunging and the collateral disappears. And if you
don't cough it up ASAP, the brokerage can just start selling
off your stocks at whatever price they can get, regardless
of what you paid for them.
Who knew?
A margin of confusion
I had already gone on margin a bit my first week. But then I
sold those four stocks, and everything got sort of confused.
Besides, my debt seemed like a pittance compared with the
profits I could make buying promising stocks at bargain
prices. This gamble was a sure thing.
It was Wednesday morning, and Nasdaq was down. The prices
were even cheaper than the week before.
Oh, the bargains.
I have an online account with Charles Schwab, so I sign onto
my computer at home. I've got CNN in the background, keeping
me posted on how Nasdaq is doing overall as I concentrate on
bidding on my stock picks.
Uh-oh. It looks like a rally. My bargains are going to slip
away forever.
In a mad frenzy, I keep upping my price, keeping it a shade
below the last posted price, hoping to snag the stock a buck
or even a quarter less per share. It's ridiculous, but
there's ego riding on this, too.
Finally, I score. And it's off to another stock. And
another.
I'm obsessed. I lose track of the time. I lose track of the
money.
About 15 minutes later, I check my account balance. I'm $15K
in the hole — money I didn't have.
I break out in a panic. OK. Not to worry. I'll just sell
some of my less promising stocks.
Too late. The rally had lasted as long as my frenzy. All my
stocks were down from what I paid. I couldn't sell anything
without taking a hit.
And my new stocks were already heading down, too.
Again I tell myself not to worry. It'll go back up. You'll
sell later.
But later never comes. The prices keep plummeting. By the
end of the day, the value of my stocks had dropped about 10
percent. Far worse, my account balance showed that I could
only spend another $57 on margin, which meant that if Nasdaq
so much as sneezed the next day and my portfolio dropped
more in value, I'd be getting the dreaded margin call.
You can run, but you can't hide
"Hide. Don't answer the phone," my friend Anastasia advised,
seeing me all knotted up.
Alas, a method I've used with other creditors would not
work. The last thing I wanted was for the brokerage to start
selling my stocks willy-nilly.
Money. I needed some money.
I had a few bucks in a savings account. There was the $10 a
week I put away in the credit union. I eyeballed the
checking account. Our car was due to be paid off next month.
Now it would be a month later. It didn't matter. This was an
emergency.
I raced to Schwab. It was a modest deposit, but enough to
keep us out of danger. At least another day.
And then I had my heart attack.
I had a boss once who had a heart attack. He said the funny
thing was, he didn't feel any pain in his chest. But his
left arm got this pain and it went limp.
So when my left arm got this pain and it went limp, I was
convinced.
My friend Suzanne drove me to UCSF. She told me to think
happy thoughts, of my 12-year-old son Mark and what a
beautiful sunny day it was. All I could think about was what
a mess I made of things.
At the hospital, my blood pressure, usually low, was sky
high. The nurse felt my left hand. It was cold. Off I went
for an EKG test to monitor my heart. Exhausted, I fell
asleep.
I woke up and felt much better. No heart attack. The doctors
didn't know what it was.
But I did, only too well.
Going down without a sweat
Thursday, the stock market continued to plunge. I was,
curiously, less worried. Disaster had struck. I was on the
Titanic. There was no escaping the icy waters.
By Friday morning, my husband and I were resolved. We had
hit our lines of credit. We had written checks against our
credit cards. We had no other choice. We would sell some
stocks.
My husband wanted to sell the strongest, so we would lose
the least. But I wanted to sell some of the biggest losers.
I was mad at them. They had betrayed me. I wanted to be rid
of them.
I put them on sale, a hair over the current asking price,
praying that some blip upward would nab us a few dollars
more.
I took Marty to the BART station. On my way back home, I ran
into my landlord, Bijan.
He's played the stock market for years, and still thinks
about the sales he made in haste.
Do not sell, he tells me. I'll regret it. Get the money
somehow.
I go upstairs and do the unthinkable. I call my father.
My dad gets irked when he finds out that another supermarket
is charging a quarter less for the toilet paper he just
bought. It was his money I had blown. I knew he was tapped
out. But before I threw away thousands of dollars by selling
them at a 20 to 50 percent loss, I had to tell him.
Now it was my father's turn to have a heart attack.
He ordered me not to sell. I don't know where he got the
money, but within two hours he had made the trip from his
house in Queens to the Schwab office in Manhattan, and
knocked the margin debt down a chunk. Short of another Great
Depression, we're safe.
I promise, I said to my dad. I'll never buy on margin again.
Ten minutes later, I couldn't resist. Oracle stock was up to
68, after a low of 64, and it was climbing.
Oh no, it looks like a rally. I'll never see that price
again. And before I can stop myself, I put in a bid to buy.
Even I can't believe it.
I get it for 65 15/16. My bargain later goes down to 60 and
closes at 62 1/2. I'm down nearly 7 percent. Serves me
right.
I find that I'm addicted to the stock market. I get up early
to check prices. I stay up late, charting how my stocks and
others on my wish list are doing, keeping tabs of the low
prices so maybe I can snare them next time the market dips.
And I spend countless hours on the phone with the 24-hour
brokers at Schwab.
I can think of little else.
"Hi, how was your day?" I say to my son when I get home from
work. And before he can answer, I add: "Get off the
computer. I need it."
People who are not into the market don't understand it. I
was like that once.
With the margin panic over, I'm not worried about getting it
back. I just feel jilted.
I had seen it as a game. Nobody was supposed to get hurt.
I expected dips. But not this kind of week.
I'm going cold turkey. I'm going to try not to even look
anymore.
I thought I was going to make a killing on the market.
Instead, it's killing me.
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