Chapter 1: One Stock Can Change
Your Life
In 1998 my father passed away, and I inherited $15,000 from him in a life
insurance policy. At the time I was just a broke graduate student, but I
always had an interest in the financial markets. So I decided to take that
money and see what I could do in the stock market.
I didn’t know anything about investing, so I first read about fifty books on
the subject over the space of two months. I just devoured them. Some of the
books were great, some not so good, but as I read more of them, I thought I
had a good idea of how to invest. I could see in my mind different strategies
that could work.
I took my $15,000 and put it into three stocks. The first stock was a local
textile company that a friend worked at and that was on the verge of
bankruptcy. He told me that he was hearing rumors that the company might
get bought out, so I threw all of the ideas I got from these books to the side
and decided to make a gamble.
I didn’t hold this stock long, because it took it about a week for it to start to
drop. I had read over and over again that you don’t want to hold on to
stocks that are dropping, so I quickly sold it. That much I learned. And
indeed the company eventually went bankrupt and the stock went to zero.
Luckily I didn’t lose much. So much for hot tips and buying on rumors, I
thought.
The second stock I bought was an oil rig company called Atwood Oceanics
that, according to some fundamental analysis ideas I had learned, was
trading at an incredibly low valuation. I made a few points on it and sold it
within a week of buying it for a small gain, because of the third stock I put
my money in.
I decided that this stock was so good that I had to put all of my money in it.
Now I don’t recommend that you ever do anything like that, and I never
would now. But at the time I was just twenty-four years old and it was a
small account, so I could take a big chance like that.
The Internet stocks were rising into a bubble at the time. It is hard to
believe it now, but there were stocks that would go from $10 to $100 in a
day. Internet companies were going public on the stock market with initial
public offerings (IPOs) and seeing their stocks open up at crazy valuations
and prices.
One day while in a Barnes & Noble looking at investment books, I angled
over to the magazine section and bought a copy of Businessweek. I ran to
my apartment and started to go through it. On the back page, I saw an
article about an Internet company called CBS Marketwatch and how it was
about to go public. The writer expected it to be a huge IPO, projecting the
stock to possibly open up over $100 a share.
He also mentioned that its biggest shareholder was a parent technology
company called Data Broadcasting. The article talked about how when
other companies of the past few months had spun off parts of themselves
and taken them public, they had seen their stock prices rocket up before
these IPOs started trading. Many of these parent stocks doubled in value
into the day the IPO of their spin-off company started to trade. Some even
tripled. I could see how the same thing could happen again with Data
Broadcasting.
Now this doesn’t happen anymore, so don’t try it. This was back during the
Internet stock bubble days of 1999, the greatest year for the Nasdaq
composite ever. At the time, though, I could just see how this stock could
turn my little account into a big account. I could look in the future and feel
how exciting this could be. In less than two weeks, the big CBS
Marketwatch IPO would happen, and I expected Data Broadcasting to go
up as the day got closer.
So I put all of my money into this one stock at around $18 a share. Every
day I would come home and log on to my computer and head over to
Yahoo! Finance to read the Data Broadcasting message board. On there I
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