Trader Almost Daily In January of 2001 I separated amicably from a dot com (Homecom Communications, Inc) I had started and brought public. I thought about starting another company but just wasn't in the mood to be jumping back in the fray after watching the Great Dot Com meltdown from the inside. At the time I told my wife that I thought I would try my hand at trading the markets. After all this is something I knew a lot about. But more about that later. I didn't know if I could make a living at it but I didn't see much to lose as the market for dotcom executives was even worse then than the job market is today. The first year of trading I made more than I made as the CEO of a small public company during the previous five years.
How did this happen? Was I lucky or was I uniquely prepared for this new career? I think the answer to that question became clear over time. During the last eight years from 2001 through 2008 I have produced an average annual return of 19.29% vs. -2.42% for the S&P. The cumulative return on the my portfolio has been 161.71% vs. a negative 31.60% for the S&P. Another way of putting it is a thousand dollars invested by me in 2001 is worth over $2616 today. During the same time period a $1000 invested in an index fund replicating the S&P is now worth a paltry $673.5 plus whatever dividends you might have accumulated. I am not saying that I haven't been lucky. At times I have. I have also made a lot of mistakes. After eight years and the thumping of the S&P by over 400%, do you think its luck?
So if it's not luck. What is it? Am I smarter than the hundreds of Ivy league whiz kids that the best banks and brokerages in the world hire each year? Certainly not. I think in my case I was uniquely prepared to do this. I have been doing it off and on all my life. Yes, all my life. My father gave me some stocks when I was just thirteen and like all teenagers I sold them at the first opportunity. I certainly could do better than him, I mistakenly believed. I was a stock broker for eight years at some of the best firms. I got to learn about trading on my customer's dime. I certainly did the best I could for them. I sold them the brokerage firm's and mutual fund industry's best rated stock and funds. Let me tell you that after a few years of that, the question you want to ask the mutual fund wholesaler when he comes to the brokerage office to hawk his wares, is not "what is your best performing fund?" but rather "What is your worst performer?' The reality is that funds revert to the mean more than they continue exceptional out performance. Another one is that brokerage firm's best analyst recommendations tell you a lot about the company but little about making money. But the one thing that struck out from those years though is that how smart people spent so little time managing or thinking about their investments. People that earned $200,000 in a year would spend less than fifteen minutes thinking about how to invest it.
While working as a senior broker at a major firm, I was recruited for an executive position by the largest venture capital investor in the biotech industry. I learned a lot there. I learned how to raise hundreds of millions of dollars. I learned how companies are built and marketed by Wall Street, how executives are compensated and motivated, how deals are diced and sliced, sold amongst syndicates. I also learned how stocks are routinely manipulated, how rival firms attack their peers, and inside information is passed around like wafers at Mass. Rumors are fed and swallowed without the slightest indigestion. I was only there for a year before his firm imploded in the biggest bear market in biotech history. I learned that you can lose a billion dollars from hubris alone.
So in 1995, I took a page of out my former employer's book and started my own company. Except it wasn't a biotech, it was a dotcom. I brought it public in 1997. Deloitte & Touche ranked it as one of the
Fastest Growing Tech Companies in 2000 with a five year growth rate of 1899%. I was the CEO and Chairman of the Board of a publicly traded company replete with expensive lawyers and accountants from a big 6 firm. Attorneys poured over every word I wrote in an SEC filing, accountants scrutinized our revenue recognition, and Wall Street brokerages pumped us for information.
Today I work out of my house overlooking three ski resorts in Park City, Utah. I have spent the last eight years shredding both the finest snow on earth and the S&P 500. I work a couple of hours in the morning, some time in the evening and spend the rest of my time skiing, mountain biking, doing some community service, and mostly hanging out with my family, friends and dogs. I often wonder what I have learned. What edge do I have over the geniuses and financial titans out there? It comes down to a few things. I have set at most every seat at the table. It has given me a 360 view. I don't trust the Street and neither should you. There are only two things that move stocks. Greed and Fear. In spite of this, I can assure you the small investor has distinct advantages over the insiders, the rocket scientists, and the financial heavyweights. Follow me for a while and see for yourself. The Trader Almost Daily is my effort to allow you to peek over my shoulder as if you were there. So I am here to tell you, you can do it.