Wednesday, November 24, 2010

Nobody Ever Makes any $ in Stocks, Right?

People often try to convince me that "nobody ever makes any money investing in stocks." What I take this to mean is that this dude has never made any money in the stock market and doesn't know anyone any smarter or luckier than himself.
Bulls*** nobody makes money in the stock market! I'm not just talking about geniuses like Warren Buffett or Jim Cramer; even folks who barely know what they're doing have been known to earn some decent returns. Like me, for example. The fact that I know the information likely to be tested on your Series 65/66 exam is not really an indicator that I know how to invest. But, apparently, I do. I mean, like all investors, I make some really bad judgment calls here and there, and often I simply can't remember what I was smoking when I hit the "buy" button, but, overall, I have made some pretty good returns in the stock market. This morning--a slow pre-Thanksgiving day--I'm looking through my various investment accounts and can not help but pat myself on the back a little. About 10 years ago, I invested $609 in a fallen "dot-com" stock known as Priceline-dot-com. Many of my friends figured I was crazy, but by ignoring their uninformed pessimism, I was able to look at the company's finances objectively, pull the trigger, and hang on for the next decade. Guess what the current value of that six hundred-and change is today?
$9,533. That's a paper gain (unrealized gain) of about 1,400%.
Now let's pause for the naysayers: what about your losses, though?
In this account, I am sitting on a couple of embarrassments. Why I ever purchased shares of DELL, I'll never understand and why I didn't SELL as soon as the shares swooned, I'll also never know. But, the fact is I'm sitting on an unrealized loss of about $1,966. There is also a paper loss of about $128 on GE, proving that big "blue chip" companies can suck just as much as unknown small caps. Fine, let's go ahead and subtract the two losses from the gain on Priceline, and I'm still up about $7,439 or about 1,220%. What about the other losses? There aren't any. The other positions show gains of:
ABT $515 (12%)
HSP $993 (53%)
ORCL $800 (134%)
HGT $27 (5%)

Maybe the point would be clearer if we put it this way: the Roth IRA (which I have not been able to contribute to for a while) is now worth over $20,000 . . . even though my total deposits into the account equal just $10,000. Sure, some would say, but it took eight years for your money to double. That's correct. And, it's also a compounded return of around 9% . . . in a period when the S & P 500 has shown absolutely miserable returns and interest rates on Treasuries remain around 2 flippin' percent!
So, I'm not ready to hang out a shingle and start managing other people's money. But if somebody tries to tell me that "nobody ever makes any $ in the stock market," I look forward to showing them this blog post. I'm just an English major who did a lot of homework. Imagine if I actually knew something about investing!

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