Monday, November 25, 1996
A Cheap Lesson
by [email protected]

Once upon a time, there was a young man whose heart was filled with frivolity. He thought not of such things as making money, investing, or his career; after all, life was too short for all that sort of stuff. He concentrated on play. Oh, he did have a job, in fact, many jobs over the years to provide him with enough money to get by. This small income allowed him the much-cherished time and freedom really to "enjoy his life."

Then, one day, a terrible realization came over him; in one month, he would become thirty-five years old! Horror struck the young/old man. His thoughts turned from play to work and income. He became "stressed out," obsessed with the feeling that his life was going nowhere fast and that he needed to make up for lost time, and quickly. There was only one solution, the Stock Market! He saw how other people were making lots of fast money; this was the place for him. No need to worry about those other poor souls who actually lose money; "he" wasn't going to be one of them. After all, he was smart, always got good grades, graduated with honors from a reputable university.

Just weeks after buying a computer he was set up with real-time quotes, a charting service, a news service, and of course, Internet access. Now, being as smart as he was, he didn't rush into things; he traded on paper for eight whole weeks, and actually had returns of 30% each month in his paper portfolio. Wow, at this rate, he would only have to work six months out of the year. Well, he made his first few trades with real money, and wouldn't you know it , he made a profit.

But because of his lifestyle, he had no money saved for trading. So he borrowed from his credit cards. What's a few percentage points when he should make three times that? He knew this was risky, but he figured that after a year he could pay off the debt with plenty of capital left over for trading. Fortune smiled upon the young man. Within four months, he doubled his initial investment. It did appear that he had a talent for this sort of thing.

But he was paying a toll. The hours he worked were extremely long. The more hours he put in "studying" the market, the more hours he felt he needed to spend. He couldn't miss any opportunities. What if something were to go up without him? Sleepless nights became more frequent. When his portfolio "took a hit," he grew quite irritable and spewed this onto his friends and family. "But at least I'm still making money," he would say to himself. A hideous transformation was taking place; he was becoming the creature he most despised, a slave to making money.

The market was not so kind over the next few months. Slowly, almost insidiously, the young man's portfolio dwindled, but he was still beating the Motley Fool portfolio, he would remind himself after a down day. You see, he did read a great deal about the Motley Fool on the Internet, but he thought he was wiser. Then came July 1996. Fully margined (he had to make up for those down months), the young man learned the meaning of a margin call, and then another. "But the support?" he would mutter as his blank stare gazed upon the chart. He was forced to sell everything. What was left? Remarkably, the young man's portfolio still showed a profit of 25% for the year. "A year? Where did the time go?" he said, astonished.

That evening he logged onto his computer. He looked at the Beating the Dow Portfolio, also up 25% for the year. The next day, he canceled his news service, quote service, and chart service and called up a few friends he hadn't spoken to for some time. How Foolish.

Transmitted: 11/25/96