When Trading Stocks Turns Deadly - A Cautionary Tale
Never forget that it is just money.
Sean McLaughlin is familiar to most as Editor & Curator for StockTwits, but he also is a seasoned trader and regular content contributor via his blog (www.chicagosean.com) and his StockTwits handle (@chicagosean).
I worked in a tightly knit office of about 30+ guys during the 1998-2002 internet boom/bust.
So, around late 1999, this hot-shot late 20's stockbroker decides he wants to quit his job and become a day trader.
He comes into our office, all full of himself and with a check for $50k to open an account.
He proceeds to attempt to chat up every guy in our office to learn from them how they made money. This isn't normally a bad thing as we were all friendly and in it together. But this guy was so cocky. Whenever some of our most profitable traders would give him advice, he'd scoff and be like "that's how YOU make money, and thanks, but I've got some better ideas".
About two months in, from the way he was acting you'd think this guy was making money. Every day, at least once a day, he'd have some profitable trade on and he'd strut around the office making sure everyone knew about it. Of course, you never heard about any of the losing trades he was also sitting on. And in reality after two months his 50k account was down to about 30K….
But then he "tamed the beast."
Fast forward to just a few days after the NASDAQ peak in April 2000.
Yahoo (YHOO) had traded significantly down from its highs, and "Mr. Cocky" decides that it is DEFINITELY going back to all-time highs. So one morning, on the first green opening in several days, he loads the boat huge. Leverage was a bit of a non-issue at our firm, so even though he had approx $30K in his account, he put on a position worth about $150K of YHOO stock.
Well, wouldn't you know it, YHOO starts retracing back to its highs, moving 10 points up like it was nothing. The guy starts hooting and hollering, cheering his stock position on, making quite a spectacle of himself. YHOO moves up another 10 points and it starts to become unbearable.
He calls up his wife: "Honey! I'VE TAMED THE BEAST!! I'm killing it in Yahoo!!" he repeated this several times. He then calls up his former stockbroker buddies gloating about how quitting his job was the greatest decision of his life and that they should quit and join him. "I'm making a fortune! I'm taking all you guys out this weekend! I'm getting us a limo and drinks are on me!"
Meanwhile, the rest of us in the office, were all looking at each other, rolling our eyes, and secretly plotting to pants this guy and throw him out the window. Nobody likes gloaters, and we all especially hated this guy.
At the close, he was up about 35 points in his YHOO position, within one good run from all-time highs again. Naturally, he decided to break the cardinal rule of day trading and hold his position over night. He wouldn't even take some of the profits off the table. He was so sure tomorrow this stock would be making highs again.
Well, the next day, YHOO did indeed gap up higher, but only slightly. Of course, our friend had a mighty big smile on his face, as he now considered himself the top dog in the office. He was sitting on something like $150,000 of open profits on an account that just 24 hours earlier was worth $30K.
I wish I could tell you this story ended here with our hero taking his profits and picking up his buds in his fancy limo.
Sadly, Yahoo essentially traded straight down, hard, for a seemingly unending streak of days. And two months later this guy was separated from his wife who filed for divorce, was penniless, and was dead. He committed suicide.
Moral of the story; always use good risk/reward rules, don't overtrade, and most importantly, remember that money isn't everything.
Photo Credit: Anton Ovcharenko/E+/Getty Images