Some days you can console yourself with thoughts of, “Well…it could have been worse…” Yesterday that particular consolation was not a straw available for me to grasp at, as my ‘all in’ bet on i2 Technologies (ITWO) turned out to be on the stock that had the largest percentage decline across the entire universe of NYSE, Amex and Nasdaq stocks. The damage was considerable, dropping me some 40,000+ places from the top 0.1% to the top 3%.
The gory details about ITWO’s earnings boil down to a significant earnings miss; a drop in maintenance revenues (often an indication that customers are unhappy with the software); and news that the 57-year-old CEO is retiring – with comments that the Board of Directors have “started looking for a replacement.”
A couple of interesting things happened along the way to this implosion. The most obvious one is that my earnings spike potential algorithm has to be considered a resounding success, as its last two selections have notched impressive gains and another stock it rated highly, ITWO, showed impressive volatility yesterday, albeit in the wrong direction. Yes, this is a Pyrrhic victory, but it is one that may pay some real money dividends down the road.
The other aspect of this is the emotional one. I have never tried paper trading and do not recommend it for those looking to learn how to trade. ITWO turned out to be the perfect case study. It cost me over a half a million dollars yesterday and my reaction was mainly that of amusement over the magnitude of the loss. Apparently, the entertainment value of CNBC dollars far exceeds the portfolio value.
If these were real world dollars, I would probably have agonized over the gap down in ITWO yesterday, hoped for a bounce (yes, I know you should never let “hope” enter into your trading calculus), then cut my losses as the intra-day pattern of lower highs and lower lows failed to reverse. At least that’s what I like to I think I would have done. In practice, too many investors, particularly inexperienced ones, cling to these horror stories and search frantically for any stray piece of information that can justify their instinctive response to hold on – with this pattern repeated over hours, days, weeks and sometimes months.
Without any dollars at risk or emotions involved in holding ITWO, I dumped it unceremoniously at the end of the trading day (no intra-day trading is allowed in this contest) and looked for another potential high-flier. Today my CNBC dollars are riding on the Amkor Technology (AMKR) bus; while AMKR has been doing wonders for my Portfolio A1 portfolio, today it is up 1%, consistent with the gains in the broader market.
Hey, at least you don’t hear me proclaiming, “