Good Returns, Bad Timing

Well, that’s one way to learn.

I wrote last week about how fun the Investopedia Stock Simulator is for learning how to buy and sell stocks, and build a mock portfolio.

What I didn’t mention is that it led me into a trap of my own making: false confidence.

I was killing it in the fantasy game. Day trading, my fake portfolio had nearly doubled in 6 months.

I had developed a playbook that was working pretty well: wait until a retail brand announces quarterly earnings below their target, buy when the market freaks out, and sell a week later when it goes back to the “normal” price.

When President Bush issued the O.G. stimulus checks about mid-year in 2008, that should have been a gigantic “WARNING: AMERICA IS IN TROUBLE” sign, but I like hundreds of millions of fellow citizens, ignored that stop sign like Pete Rose rounding third base.

Well, the way I saw it I had 3 options: spend, save, or invest. You can guess which one I was psyched out of my mind about.

Newly married, entry level job, old broken down apartment on the bad side of town, perfect time to start a portfolio.

(at least we had just paid off our debt!)

My lovely wife, my ride-or-die, my biggest cheerleader, was on board with the experiment: pool our stimulus checks, put it all in the stock market, day trade until it doubles, then take the original lump sum back out and put it in savings.

So off we went, like Sam and Frodo, all sunshine and smiles walking off into the wilderness on a financial adventure. We had $1200 in a TD account, and it was game on.

I ran the exact same playbook as the fantasy game… and here’s the thing: it was working.

Until it didn’t.

I was up to about $1700, almost halfway to the goal, playing the “PR freakout” curves – buying when others sell (just like Warren Buffett), selling when others buy (completely different than Warren Buffett).

Then I got cocky.

I noticed that the publicly traded banks were doing the same thing, except they were losing even more than retail before bouncing back.

If this playbook works here, shouldn’t it work there? (Spoiler: it does not)

Then one particular shiny object caught my eye: Washington Mutual. WaMu. My personal bank. It was jumping around wildly, but in somewhat of a pattern. Instead of seeing more red flags and stop signs, my heart rate went up (in a good way). It was thrilling to make cash buying and selling ownership in my very own bank.

Then one day I got home from work, flipped on the news, and couldn’t believe it.

My bank had gone under.

Turns out, Chase bank had tried to buy WaMu months prior, and had been declined. So some strings were pulled, their borrowing capabilities were choked back just a little bit, customers freaked out and made a run on the bank pulling cash out, and bam. Chase acquires WaMu for pennies on the dollar.

And my original bankroll is still, to this day, worth about $60.

I learned a few lessons….

1. Stay humble

2. Don’t day trade

3. Just pick an S&P index fund, set and forget

4. Pay close attention to retail activity

Be vigilant, friends!

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