Trading Lessons: The Mountain Top Is Lonely

This story is part III of my trading lessons series.

I’ve been to the top of what is called ‘trading nirvana’, a place where I thought I would have plenty of company. Back in my early trading days, I thought there was nothing bad that could touch me. As you recall from a previous article where I turned a small sum of 7K into a nice amount over half a million in just a few years. This was ‘it’ for me, and while it was far from a fortune I could live on the rest of my days, I certainly believed it was a great start. Perhaps I was lucky and found a winning lottery ticket and cashed it in.

We could certainly say ‘right place at the right time’, a success if we measure the size of our profit/loss. But how do we handle this success? Are we just stubborn, greedy and full of hubris? Do we freeze up and panic at the sign of trouble, or just ignore any warnings – believing we can repel any dangers as if we were made of teflon.

When we get caught in a bubble and make a tremendous amount of money, it is tough to leave that party. Who would ever want to get off that ride? But, unfortunately that choice is not often made voluntarily. For me, the ride started to shake at the start of 2000 and came to a rough ending the following summer.

After barely making it out alive from the Spring of 2000, when the markets cratered (Nasdaq dropped 26% one week in April alone) I was determined to move ahead. This bit of a correction was not going to bother me, after all it took me 3+ years to earn a nice fortune – how could I lose it in just a few short weeks? The stock Broadvision was one that I tracked for years, and while I had emptied my tank of all things ‘dotcom’ this one still had my eye.

I amassed a good quantity of stock, about 7000 shares in early 2000 and Broadvision started to move nicely higher. I had only a handful of other names left, and after the carnage in the Spring had about 1/3 of my nice account left. That was enough to get back up in my mind, and Broadvision was going to be the horse I would ride to the finish line. Or so I thought!

Come July, the stock was in the low 50’s, I was still on margin with this name but feeling quite confident. One Friday morning, I awoke and turned on my computer only to find this stock down 7 bucks. I was horrified! It had to be some mistake, right? I scoured for news, but could find nothing. It was about 90 minutes before the open, on CNBC all i could see was the symbol (BVSN) going across the ticker losing ground every second. I was beside myself, and with no protection on I started to count the losses in my head. ‘Calm down, Bob…it’ll come back just be patient’.

I could not soothe myself enough, as the stock opened down nine bucks and sold harder the rest of the day. The news: Broadvision lost a contract to competitor Art Technology Group. That was enough to sink the company 20%? I held on, and the pain got worse. I ended up selling all the shares end of day when the stock hit the low, down 13.75 on the session. That was a loss of nearly 100K in one day, in one name. It made for a difficult but reflective weekend.

Lesson learned: Too much exposure to one name (no diversification), trading on margin is a no-no at all times, and always have some protection on. The lessons learned from this trading experience have made me a better trader today, even though it was more than fifteen years ago.