Where In The Hell Are We Going? To reiterate the disclaimer: The ignorant and malicious are free to reveal themselves with replies that I will not acknowledge. The inquisitive and intellectually stimulated are invited to post constructive replies, and or questions. History is amazing! Here are the boom and busts I have lived through as a trader: 1989 Limited Partnership Bust Tons of investors were crushed by the illegal antics of many limited partnerships. I entered the industry as a stockbroker, and this was also the time when I started investing my money. I was on the phone with clients and the market had left a very sour taste in their mouths. Iâm just glad I wasnât working for Pru at that time. This is where the marketâs reality started to set in for me. How amazing that I was just given the book, âExtraordinary Popular Delusions and The Madness of Crowdsâ. I read this book to and from the office while riding the express bus (this book really wasnât the symbol of an eligible bachelor to the women who sat across from me J). One of the core points in the book, people looking for the next boom after being busted by the previous one. It became apparent to me that the herd dealt with the devastation of loss by fixating their greed on something new. 1989 -1995 Biotech and Pharmaceutical Boom and Bust Not too long after the Bush-Quayle administration moved into 1600 Pennsylvania Avenue, biotechs and pharmaceuticals began going vertical. Dan Quayle couldnât spell âtomatoeâ but he rallied support for a new rule, âorphan drug statusâ an HOV lane for HIV and cancer drugs. This new rule would push any drug in Phase 1 trials through to Phases 2 & 3 in less than a month. This was an amazing rule! Most drug companies had to wait a minimum of 6-months to get approval from the FDA to move to next Phase. FYI: Phase 1 = Clinical Phase 2= Animal Phase 3= Human Every upstart biotech shifted gears and told their âwhite coatsâ to focus all efforts on HIV and cancer drugs. The beauty of the new plan was all the company needed to do was put out a press release stating that their working on a new drug for HIV or cancer, give an estimated retail price for the drug and then calculate the number of people with the disease. After a 5th grade mathematical calculation a brokerage firm would issue a BUY RECOMMENDATION on ABC Drugs (ABCD). Stock is at $1.25 with 2MM shares outstanding and 1MM in the float, estimated market for the drug is $1B. If company âgets only 20% of that marketâ the stock could be $40 per share. Hello? Doesnât that make sense to you? Absolutely! It made sense for everybody. So much so that approximately 200 biotechs and pharmaceuticals went public between 1990 and 1994. Of those companies there canât be anymore than 10 that are still trading. I had many clients in these stocks and made it a rule to flip out of them once a 100% return was reached, and then move into cash or NYSE preferredâs, fortunately never burning a client (the only ones who got burned were the oneâs who didnât listen). Everyone was making money: the biotech, the brokerage firm, the broker, the client and the clientâs family. Just about everyone lost money when the stocks busted, except for the top management at the biotechâs. Many of these guys were out buying Cornicheâs and 5-10k sq.ft. homes in Beverly Hills and Orange County, CA. 1994-1996 Semis, chips and boxmakers⦠â¦exploded. They didnât exactly bust, the âdot comsâ distracted the rally. As Al Gore took credit for this new Internet thing, stocks were gapping up 5,10,20 and 30 points at a clip. I was fearful of this ridiculous move, and didnât trade a share of Internet stock. I knew that if no resistance was found or formed on the way up, there would be no support on the way back down. I stuck with my âstableâ, focusing on the stocks that I knew. The semis, chips and boxmakers met many of the CANSLIM requirements. 1996-2000 The Internet Boom and Bust This is the time when the title SOES bandit / trader becameâ¦âday traderâ. In spite of my pleas with many of the traders on the floor to stay away from these stocks, overnight âat leastâ. I had a reputation for telling people to ânot take home overnightsâ; I believed in swing trades, I didnât believe in swing trades on dot coms. The vertical moves were too unnatural for me; there were no convictive and steady uptrends. I thought of a plane ascending nose up vertically. My discipline was tested during this time. It took a lot of strength to stay away from these stocks, and thankfully intuition prevailed. I was able to convince many of my students that they must learn how to trade in any market, using a solid method. Their belief in the training group and me was confirmed when they saw me trade live in the classroom. I didnât mind being a focal point of laughter for a newbie trader who opened an account with $25K and saw it go to $500K in a few months, many of these people were losing $1-2K daytrading, and making âunrealizedâ profits of $10-40K on overnights on a daily basis. They became self-proclaimed âgurusâ, challenging those who werenât in their boat. Here is the equation that produced the result of their demise: Bull market (confused with brains) + cockiness (no humility) In the first week of March 2000, I held a seminar in Montvale NJ (All-Techâs HQs). The title of the seminarâ¦âShorting. Is The Bear Among Us?â the fire dept. sign on the floor said â125 Persons Maximum Capacityâ. Over 250 people came to that seminar, including the Montvale Fire Marshal to write a summons, the parking lot caught his attention. Every seat in the house was used and there were people standing all along the walls. Why so many people? Everyone wanted to know who the maniac was, the person who said the market was going lower. Traders from GSCO, MLCO, JPMS, NASD employees, and newbie millionaires that attended, snickered and mocked the seminar. So many people were yelling and saying that it was a crock. Three plus weeks later (after March 31, 2000) the classes were booked for two months. I got tons of email, letters and phone calls from people thanking me for the seminar. Did it feel good to say the market was losing its steam and may go lower? After it was confirmed, sure. However, it felt better to not be one of the quick millionaires. For the next 2-years most of the newbies lost all of their money, and many saw their accounts go from $1M to negative $20K. Shortly after the bloodbath thickened, several traders sued the firms (including All-Tech). Claiming that it was the firmâs fault they lost so much money. I was called in to many of these arbitrations as an expert witness. All-Tech won all cases, except for oneâ¦regarding its advertising in 1996. During this period a ton of trading schools, mentors and gurus spawned and began pushing their wares. They teach strategies where you can make lots of âkachingoâ and use a software platform that tells you to buy after so many greens and sell after so many reds. There is no such thing as getting rich quick in trading. When I started training people there were "no" other "formal" training programs. Most of them began spawning in the late 90's right after the Internet boom, and the levels at which many of these people operate is very low. In my retail broker days ('89-'95) I met and worked with many "big swinging ****'s" who made lots of coin, and like them many of the crooked people in this industry will face the public, the press or the jury at some point or another, the only variable is how much money they can make before theyâre caught. 2000-2003 Gap downs and solid down trends in equities (specifically tech and Internet). As the bloodletting continued and interest rates dropped, everyone began calling the sell off the âstock market crashâ of the millennium. 2003- 4/2004 Everyone believes the market is going back to where it came from. The Internet boom from other countries insert themselves into US soil like a virus. People on message boards claim their spot on the list of gurus by saying the market is going back to the moon. Nice trends, follow through, little gap upsâ¦everything is great! Future? Where in the hell are we going? Who knows? Expect nothing and prepare for as much as you can. I quote an excerpt from Dave Goodboyâs (marketsurfer) interview with Innerworth⦠âHow did knowing that the markets were "chaotic" help you? It helped me view it differently. Instead of viewing it as something that youâre to fight against, I viewed the market as something to flow with. With Eastern thought, you flow with the market, you do what the market tells you to do, and you donât try to impose your will on the market. You let the market tell you what to do with no preconceived idea.â As far as Iâm concerned, Dave was right on the money. If you want staying power in this market, you must learn how trade or at the very least survive in all of its phases and patterns. You cannot change the market; it doesnât owe you anything it just is. If you focus more on what is going on right now, and use an objective approach rather than look at it subjectively and pray that it moves with you. Buffet, Icahn, Lynch, Pickens, Soros, etc. all have one thing in common: they have a plan and stick with their strategy. They reached the level of moving the market, simply because they didnât allow the market to move them. They have all been burned on the past, but they have staying powerâ¦unlike the Huntâs. "Those who do not understand and respect history, are doomed to repeat it and provide liquidity for those of us that do." Happy Motherâs Day Last report... http://www.elitetrader.com/vb/showthread.php?s=&threadid=29956&highlight=report
Not really Seth. The topic of this report was inspired by all of the "uncertainty" buzz out there re: near term market direction. As far as the seminar goes, many topics will be covered. However, the focal point will be intra-day and swing trading strategies. Using technical and momentum analysis.
Added Schwager to my directional title. Almost eleminated Buffet because he talks higher taxes; but since he is a businessman probably more talk than walk In a multitude of counsellors there is safety Solomon,trader king
I'm curious. How did you manage to pull this off? Most firms at that time frowned upon "flipping", I understand and respect why you did it. But how?
'flipping' was the wrong word, closing positions or scaling out is what was meant. to actually flip out of those stocks , buying and selling almost immediately, were not done in these positions because they were long time range trades
Just to review the definition (for the word at this time) Flipping - buying IPOs and selling them either right after they opened or certainly before the "cooling off period". Investors that looked for IPOs to sell in the first few days were commonly referred to as "flippers". Now the answer to your question... I was a decent producer and was able to generate good business through my own research (fundamentals and CANSLIM) and $15mm AUM at the peak, $10mm avg. While I wasn't particularly liked for "flipping" the firms I worked with knew this was my way and my number one priority was the client.