Author Topic: Here's what happens when you bet it all on one stock  (Read 6190 times)

yolfer

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Here's what happens when you bet it all on one stock
« on: March 05, 2013, 04:27:35 PM »
http://tech.fortune.cnn.com/2013/03/04/apple-zaky-bullish-cross/

Here's a sad story of an investment "guru" so bullish on Apple stock he formed an investment company to manage $10MM of other people's money. He lost it all when Apple stock went down in value.

This is a classic example of what happens to people who are enchanted by the promise of easy gains with low risk. It has all the elements of stories like these:

1. someone makes a few lucky guesses (4 in this case) and thinks he's smarter than the market
2. cultish personality combined with beginner's luck attracts large following of mostly financially-illiterate investors
3. guru and followers get too greedy and forget (or never learned) about investing fundamentals
4. guru's luck runs out. everyone goes bankrupt.

plantingourpennies

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Re: Here's what happens when you bet it all on one stock
« Reply #1 on: March 05, 2013, 06:52:10 PM »
My favorite part of the article was the Haiku written by one of the investors who lost big:

"Technicals failed
Fundamentals also
No one did better"


Adventine

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Re: Here's what happens when you bet it all on one stock
« Reply #2 on: March 05, 2013, 07:02:25 PM »
Total trainwreck.

Jamesqf

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Re: Here's what happens when you bet it all on one stock
« Reply #3 on: March 05, 2013, 07:10:41 PM »
Illustrates one of my few pieces of investment advice: Buy the damn stock, for cash.  Anyone who "invests" in puts, calls, margins, or any of that sort of thing would do better to take their money to Las Vegas.  At least they'd get free drinks while they're losing it.

chesebert

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Re: Here's what happens when you bet it all on one stock
« Reply #4 on: March 05, 2013, 07:56:14 PM »
I don't agree with that. Investors can use put/call to mitigate risks in their portfolio. Long/short funds/strategy generally do well where there is less correlation among stocks, provided they are used in proportion to other core securities. Properly used, options can mitigate risks and improve risk adjusted return over a period of time. Obviously, options were not used in this manner in the Zaky case.

Nords

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Re: Here's what happens when you bet it all on one stock
« Reply #5 on: March 05, 2013, 10:37:43 PM »
Anyone who "invests" in puts, calls, margins, or any of that sort of thing would do better to take their money to Las Vegas. 
Seems like a sweeping generalization.  We sell covered calls as part of rebalancing.  It forces us to do the rebalancing (instead of agonizing over it) and it generates a bit of cash in the process.

Forcus

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Re: Here's what happens when you bet it all on one stock
« Reply #6 on: March 06, 2013, 10:38:39 AM »
I would revise that to say "anyone who invests in puts call,s margins... without understanding what they are doing...". I don't understand, so I don't do it.

yolfer

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Re: Here's what happens when you bet it all on one stock
« Reply #7 on: March 06, 2013, 12:09:38 PM »
My favorite part of the article was the Haiku written by one of the investors who lost big:

"Technicals failed
Fundamentals also
No one did better"

I love that too, and I'm highly amused that it's not even a proper Haiku.

arebelspy

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Re: Here's what happens when you bet it all on one stock
« Reply #8 on: March 06, 2013, 12:27:22 PM »
Ouch.  That story was rough.

I feel like AAPL should be higher, but I don't wager money on it (i.e. market timing).  The market sets the price, not me.
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Richard3

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Re: Here's what happens when you bet it all on one stock
« Reply #9 on: March 06, 2013, 01:50:04 PM »
I'm happy for AAPL to stay where it is for now - I've got some cash coming in the next month or two and would like to increase my position size at the current price.

FiveSigmas

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Re: Here's what happens when you bet it all on one stock
« Reply #10 on: March 13, 2013, 01:20:21 AM »
Yikes!

I'm with the other posters wary of (careless use of) derivatives. It's scary enough that people might bet their entire livelihoods on a single company, but investing almost entirely in derivatives of a single company is insane. AAPL may have slid quite a bit, but if you bought the underlying stock at its high on Sept 19, 2012 and sold it today, you'd have lost "only" 40% of your investment (which is terrible, but still recoverable). By investing in (time-limited) call options, these folks lost essentially everything.

Edit: grammar.
« Last Edit: March 13, 2013, 01:24:46 AM by FiveSigmas »