Thursday, August 22, 1996
Foolish William and Silly Billy
Several months ago I discovered two interesting Web pages in my Internet travels. One was the Motley Fool which I thought gave a lot of good -- and FREE -- investment advice. In the past, my goal has always been a 15% return on my investments, although I rarely achieved it because of knee-jerk reactions and constant meddling. And here was a proven, historical method (BTD) which has averaged 22.2% for decades with virtually no work!!
Unfortunately, at the same time I discovered the Motley Fool, I also happened across a Web page for day traders. This method offered recent 200% annualized returns!!! For "only" $75 per month, I could get 4 daily recommendations with exact buy points and exact sell points. All I needed was a deep-discount broker to avoid major commission damage. I figured I could start making hundreds of dollars each day!!!
This is the point where my split personality took over. I'll refer to the two beings inside me as "Foolish William" (FW) and "Silly Billy" (SB). FW immediately started shifting investments around to position himself to dive into the Foolish Four strategy. SB moved some money to a deep-discount broker and signed up for the day-trader newsletter. And the fun began....
FW invested in the current Foolish Four stocks in late June and watched as the June/July correction took several percentage points from his initial investment. Knowing that the investments he got out of in order to get into the Foolish Four went down even more, he felt good about the move. Besides, this was a new, long-term strategy; he had HISTORY on his side. FW continued to try to find other under-performing investments to liquidate in order to put more into the Foolish Four.
Meanwhile, SB, holding down a full-time job, attempted to translate his daily newsletter into megabucks. You have to understand that to make money as a day trader, you need to be VIGILANT. You're only hoping for a $1 or $2 gain on each trade. SB became a Nervous Nelly; what if the stocks hit their sell point while Silly Billy was busy at his REAL job? How many times a day did he have to check his stocks in order to buy them at the right price and sell at the right price? Does he need to buy all four recommendations each day in order to get the full effect of the strategy? (On this last point the decision was made for him because of a lack of capital since SB was already using margin to make his purchases.)
SB suffered severe mood swings as stock after stock was stopped out for losses during the volatile days of late June and early July. However, as the newsletter arrived in his E-mailbox each day, SB would be tempted to try again; it almost became an addiction. To add insult to injury, the newsletter editors started a daily "hotline" phone service. So if you were willing to spend an additional $225 each month, you could get twice daily phone messages with even more recommendations -- even updates on the stocks that they recommended to the newsletter customers.
Whoa there! This brought even a dense sort like SB to his senses. Talk about working at a competitive disadvantage -- the hotline folks knew more than the lowly newsletter folks!! SB canceled the remainder of his subscription and watched as the July 15 market debacle stopped out his last few stocks. Final tally after one month: 12% loss of original capital, 87% losing trades. The percentage loss was not that great compared to other investments he owned during that volatile month, but SB worked so, so hard to lose that 12%, being ever-vigilant, nervous, irritable, taking each loss personally.
Luckily, SB has receded to the furthest reaches of my brain, and FW has become the dominant one, feeling the peace of mind that only a Fool can truly appreciate.
[Editor's Note: I believe this is the first Fribble submission we've had from our Web site and I look forward to more in the future. Foolishness is taking over the planet!!! Wha ha ha ha ha!!!!]
Transmitted: 8/22/96