Dan's Thoughts

If you have no interest in finance, completely skip this post. I ingeniously decided in early November ’06 to stop letting my money continue to idle in a weak 1.45% annually yielding savings account. So naturally my compulsive nature took over and I soon was watching CNBC and Bloomberg instinctively, subscribing to the WSJ’s PodCast, reading every finance book I can get my hands on, and ignoring all other aspects of my life in order to try and earn maximum capital appreciation. In these two months of eccentric and poorly designed financial planning, I have learned more than I could have imagined, and I still have no idea what I’m doing.

Before today (thank you iPhone) I had unrealized gains of 1.71%, far below my expectations, but still on par with the market’s historical 8% annual return. Apple (AAPL) was my first stock and it is still my baby, but as we all know, babies can sometimes misbehave and upset you, which is what happened painfully. I pulled the trigger at 89 and change, and within a month it was trading at 80 amid a stock option controversy that was featuring Mr. Mac himself, His Steveness (Steve Jobs). About half of my entire portfolio is still allocated into Apple, so that loss was extremely substantial on my returns thus far, almost completely erasing the great returns I had in my various other stocks, notably DirecTV (DTV), JetBlue (JBLU), Under Armour (UA), and J. Crew (JCG).

Here is what I’ve learned: Hedge Funds control today’s markets. The very loosely regulated HUUUGE $$$ funds literally move markets, as the pressures on a Hedge Fund manager push them to be reckless. Understandable, as they are in control of hundreds of millions of dollars of their clients investment dollars. Unfortunately, these fund managers LOVEEE to utilize the short-sell, which can be very profitable (I am scared to death to short anything). This however can keep the price down on stocks that are obviously undervalued. If 10,000 Joe Schmo investor retards like me each buy one share of Apple for example, that one hedge fund can sell 100,000 shares one minute later. That understanding is the best lesson I’ve learned as to why stocks go up and down, no that’s not the most important lesson actually.

The most important lesson I’ve learned is not to only buy dividend issuing stocks or to stay diversified (Which I’m not), it is to stay PATIENT. I am astounded at how irrational Wall Street is, as everything is SELL FIRST and ask questions later. If their is even a whim of uncertainty for a company, traders will kill it without any further questions. This fickleness was also a tough adaption for me, as by nature I tend to be very rational and thorough, whereas traders don’t even think about anything beyond five minutes. At first it was frustrating, but again, this understanding now makes things easier to understand. Take Apple again, today Apple unveils the iPhone and iTV at MacWorld and the stock soars almost 8%, but what if the phone turns out to be a dud, or people don’t pay the $400 or so price tag or the iTV has faulty Wi-Fi connections to the iTunes Store– everyone on the Street is obsessed with the current moment, after all, it’s not their job to analyze or forecast a stock’s future.

Along with the patience, was my over-trading tendencies early on. A lot of the gains I have had have been eaten up in commission prices that I was paying. I chose ScotTrade for their lowest stock commissions and powerful trading platforms. I certainly recommend them, but I didn’t realize at first that those $7 fees really add up. It’s nothing for a trader with $100k but I’m a student at a public university, the dozens of $7 fees could have really been nice in my realized gains. So for 2007, I resolve to stay patient and trade much less, and maybe transfer some funds to upstart zero commission online brokers like Forex or Zecco. I also want to trim some positions I am lingering on to, and diversify in the energy, financial, and health care sectors (Baby booooomers are coming). So these are my undoubtedly incorrect thoughts on playing the stock market thus far. I plan on reading as much as I can this year, and yielding a better return on investment than my bank’s savings account was offering.

My speculative stocks of the year
BlockBuster Inc. (BBI)
Napster (NAPS)
Sirius Satellite Radio (SIRI)

All three are very dangerous stocks to pull the trigger on, but as a young investor, I can afford to brunt the risk and volatility that comes with them.