Last week Jim Cramer told readers of the trade that changed his life. (Click
here if you need a refresher.) The stock was
, the odds were high, the payoff was huge. JJC asked readers to email in the stories of the trades that changed their lives. Several have, and we hope several more will. Read on below, and email your tales to
A Good Bet in the Casino Leads to a Better One on the Casino
March of 1993 was certainly full of many surprises and a lot of "magic". I was in New Orleans for a weekend conference. The weather was horrible but my life was about to change. My father and I decided to travel an hour north to Biloxi, MS, a soon to be new mecca of riverboat gaming.
After taking it on the chin for $300 at a smoke-filled tug boat of a casino (I borrowed the $300 from my dad, since I was penniless and a dummy), we happened upon a new gaming development in Bay St. Louis, MS. For a Saturday morning I was stunned to see people of all makes lined up outside what appeared to be two buildings built on top of barges in a moat. No landscaping, no valet, no show girls, minimal signage, and a lot of constrution. The parking lot was barely paved but cars and RVs were stacked on top of each other like sardines.
We finally made it into the casino and we were amazed at the look and feel of Las Vegas. Who woulda thought that we were standing on a barge full of people and excitement on a Saturday morning in Mississippi. We felt something very different in the air there and had to know more. After interrogating many of the staff people running around, we realized that not one of them could tell us if the company that owned the casino was publicly traded. DING! We put "undiscovered gold mine?" in the back of our minds and proceeded to the craps table.
Since I was tapped out, I stopped by the concierge desk to wield my "plastic" for another $500 (can you say idiot?). Determined to beat the odds, I plunked down $10 on the pass line over and over again to see $300 of my "investment" raked in by the dealers. Glaring down my bloodied nose at the other "sheep" at the table I decided to "shoot from the dark side"--the don't pass line. As the table continued to freeze up, I sprung back into the black in a hurry. Having won back the $600 I had lost so far that day, I had a new bank roll of $800 ($300 of my dad's money and $500 of uncle Visa's) and a "get out of jail-free!" card.
At that moment, the stick man pushed the dice toward me . . . it was my turn . . . what should I do?. The table was so cold that the shooter next to me was making an ice sculpture out of his fruity boat drink. At that moment I said "what the heck, its not my money." So I plunked down $50 on the pass line and slid the dice towards the back wall---Winner, SEVEN. The ice was cracked! I doubled my bet to $100---Winner, SEVEN. From that point on I was hitting 4s and 10s like I had loaded up the dice. By the end, the crowd was frothing and the humidity above the table brought on showers. With my tray stacked with black chips and all numbers covered on the table, I was invincible--SEVEN OUT, LINE AWAY cried the stickman!
It's was over, what a run! The floor manager made his way through the crowd to shake my hand and ask my name. Was he with the IRS? He asked me what I was doing in town and I told him I was a new yankee gaming stock analyst from up north. He kindly asked if I needed anything and assured me I would be welcomed back any time.
It was Monday back to the grind of being a faithful sales assistant, pitching stocks to people who didn't want to talk to me. Before lunch I called my research department to get a list of new casino companies building in Bay St. Louis, MS. The only name I got back was a recent IPO called Casino Magic (CMAG). After reading the small amount of proforma information provided about the company, I punched up CMAG on my quote machine. BUMMER the stock is $25, up from the $5 IPO price. I reported back to my boss (my dad) what I had found out about the barge in Mississippi. He said we were too late, the stock has already made its move, so we went to lunch.
During lunch I kept getting this feeling that there was more to it than my research department and quote machine told me--I got that Peter Lynch feeling. Fearing my father's wrath, I told him to sell everything he owned and roll it into CMAG. I was right, he thought I was a greenhorn idiot. When we got back to the office, I dodged my receptionist and headed straight to my quote machine and punched up CMAG. WHAT? TRADING HALTED, NEWS PENDING? The news was a well above estimates (there weren't any) quarterly earnings report of $.50/share. WOW! For the next hour before trading resumed, I put my analyst cap on and crunched some make believe numbers -- $.50 this quarter x 4 quarters = $2.00/ share, THIS YEAR. A multiple of 20 and bingo you got a $40 stock price. Hey, this is what momentum investing is all about! The stock opened at $29 and I fired off a ticket for $5,000 worth of CMAG (Every penny to my name, my winnings from the casino). The stock was so new that no options were available yet.
That day the stock closed at $32 . . .I'm a genius I thought. Friday was pay day and I bet my $5,000 paycheck at $35/share that the stock was going to $80 (based upon my new "conservative" growth rate of 40%). For the next 2 months I rode the wild riverboat gaming wave. Using all the margin I could I pressed my bet all the way to $85/share by May. Had it not been for my dad with 30 years of experience who said enough is enough at $85, I probably would have rode CMAG roundtrip to the now lofty level of $2/share. By the time CMAG hit $85 I swore I was a genius and the best junior gaming stock analyst in the country to boot. I was fortunate to have cashed out (against my greedy desires) near the top!
Looking back, the most important lesson I learned was that CMAG was a rare opportunity and nothing lasts forever. I realized that beyond the rare out-of-the-park-grand-slam, investing was a lot of hard work and that I damn well have a game plan to navigate the markets or I would soon be out of business.
Another lesson I learned was the good and bad of sector rotation. When a sector heats up, dive in, but don't be hangin around when it cools off. The magnificent run in the new riverboat gaming sector during 1993 was built upon insatiable greed and empty promises for a new era of money for nothing. It was an important cliff's note lesson in a major sector move to the upside propelled by unrealistic analyst estimates and the law of supply and demand, ending in an avalanche of worthless gaming stocks that were once infallible.
Those three months changed my life. It created a balance sheet for me to explore other professional avenues in my life. At the end of 1993, I cut the cord with my dad's firm and journeyed out to start my own money management firm.
Today I strive to be successful (and I'm not talking only about performance) not because I accidentally learned about the power of short squeezes and momentum investing. Rather, my path to success will be the result of diligently studying the market, the sectors, and stocks each and every day. I've learned that investing is an art, not a science. Just as an artist develops "an eye" for something, so to can investors develop an eye for stocks. Just don't close that eye! Watch, look, but don't listen! Now, if I can understand and see the opportunity, I take it. If not, I pass. I would rather miss an opportunity than lose money, since opportunities in different market sectors and stocks come all the time, but money doesn't.
-- E.W. Mundwiller
Holding Longer than a Couple of Weeks Helps
The trade that changed my life was earlier this year. I bought 100 shares of DELL at 78 3/8, and look where it is now. I've been trading actively for 5 years, and this will be my first profitable year. I've always been a rather impulsive trader, and not sticking with any investment for longer than a few days, so this is quite an accomplishment for me. I started out the first year and a half buying options, so I really enjoyed your recent series on this, and the strategies you've used. I'm still not ready to brave the option world, I now own 600 shares of DELL, (bought on margin), so I've made a nice profit for the year. I haven't made back all of my loses since starting trading, but I'm closing in on it! I've found that there is money to be made by buying quality stocks, and holding them for longer than a week or two.
Keep up the good work, and keep the goatee!
-- Bob D. Palmer
I Capitalized on Urban Grunge
My children are now old enough to do their own investing, which reminds me of a family investment story. About three years ago Urban Outfitters (URBN) opened an outlet in Austin, TX. My daughter knew the company from southern California, and my twin sons began to shop there. They asked me what I thought of the stock, and my reply was "it's a fad, and it could disappear tomorrow." They bought the stock anyway, and, following advise from Peter Lynch to pay attention to your kids, I also bought the stock. In about nine months we about tripled our investment and decided to sell, which we did near the top (lucky I guess). As things turned out, we were all correct -- they picked a good stock at a good price, and I eventually was right about the fad of "urban grunge".
-- Monty Carter
When I was an international trader at Smith Barney in the late 1980's I used to watch Freddie Mac closely because my brother worked there and I had some understanding about how they made their money. I had a few years bonuses socked away while we waited to buy a house. Freddie was down about 8 points one day when the thrifts were all selling to raise needed capital. I bought 2000 shares at 33 watched it close at 30 that day. (Tough to explain what I was doing with the down payment money.) After two months the stock was at 50 and I sold 50 calls on the position. It didn't matter that the stock rallied to 130 and split 3/1. It was the first real hit that I made with my (our) own capital.
-- Michael J Driscoll
Intel -- at Your Recommendation
Read your latest Wrong! (11 Sep) about how buying Merck changed your life. I recently bought Merck and have seen it steadily go down...turnaround any time soon? Anyway, been meaning to email you for quite some time. The ad in Smartmoney that I read last week while on an extremely long flight finally compelled me to get in touch -- (great photo, but a "comfortable" shoe promotion)? I wish I could count how many times in Wrong! you describe yourself sitting in your office chair or laying on your sofa at home -- never once do I remember you standing for long periods, or walking great distances!!)
Little about myself...I'm currently serving my country in the USAF in Okinawa, Japan. Currently at the rank of Major, been in about 13 years. I travel a lot-throughout Asia-Pacific, mostly, but have also spent considerable time in Central/South America (where I met my lovely Venezolana wife in 1994). Used to be stationed in NW Florida, where, as a
subscriber, I anxiously awaited each issue for the Cramer column. I would go to the beach and while the sun burned my skin, would normally read the mag cover to cover. With the exception of several mutual funds, this was my entry into the world of investing.
My first experience was when I randomly picked several stocks from the list of "Stocks for the 90's" (augat, exabyte, and several others). I also bought into Telemex, which was being pushed hard at the time. Well, let me tell you I got creamed!! It seems each stock I selected went down. And Telemex headed higher initially, but then the peso devaluation sent it from the 70s to the mid-20s. I lost a great deal of capital, and learned a valuable lesson.
Several months later, I was on the beach, reading
. I had recently returned from a particularly long and ugly trip to Panama and points elsewhere. While I was gone, my seed money grew to about $5K due to reduced expenses and an income tax refund (Note: THIS WAS BEFORE I GOT MARRIED!!) Anyway, there was somewhat of a lengthy article, written by you, on why you were EXTREMELY bullish on
. A very well written article (can't remember the issue-wish I kept it), you presented the pro/con view, all the risks associated with such a move, reviewed your earlier Merck experience and compared to that , etc, etc. (You were also very upfront on the positions you held in the stock -- I thought the later controversy surrounding disclosure was bull.) Anyway, you got to me, even after my earlier experience with investing. It just made sense.
The 12 months that followed were unspectacular with the stock hovering around the mid-60s. A then...well, you know what happened. I increased my position, when I could, and have since made quite a bit of money, and continue to do so (how about another split, INTC?)
Anyway, that is my story. How did it change me? Well, I have since diversified my holdings into other what I hope to be Intels and now can see that things go in other directions on Wall Street beside down. It gave me the confidence and flexibility to do things on my own. It taught me patience.
I quit my
subscription after you left, but occasionally check it out for a flight or on-line.
And I read your columns each week on ABCNews.com. I checked out
for the two-week trial, but I just did not feel the content was worth the cost. With the exception of Wrong!, I can get the other features elsewhere for free. I trade on line now through Datek, and their up to date news normally fits the bill (in my present job, I can devote about 30 min a day to online and investing -- I couldn't begin to adequately read and use everything
has to offer.
Final thought: in the same issue of Smartmoney, they began an annual "Smartmoney 30," supposedly listing 30 of the most influential people in the investing world. Was extremely disappointed not to see your name...your weekly Wrong! (thursdays only -- how about 2-3 times a week?) is an important part of my routine and I always find them both educational as well as entertaining. But then I glanced once again at your shoe ad and I thought, how appropriate...Cramer wouldn't want to be in such a list of windbags, or even mentioned in the article. Just as long as he makes the issue...
Best of Luck.
-- Mark Stratton
The Trade Never Made
The (almost) Trade that changed my life----
In late March of 1981, I was going to school at the University of Wisconsin -- Milwaukee, and was on the staggered payments for tuition and room and board. (Back when tuition was only $418 a semester-and room and board was $1500) I had only $600 to my name, and owed about $1400 for my next payment. Being a prideful person, I did not want to call home for money to make ends meet, and decided that I would speculate my $600 in the market. A guy in the gym, Jerry Ossinski, said he was playing options on ATT (I think they were splitting up at the time -- and told me you can make a lot of money with a little on options), so I went to the library and poured over the Wall Street Transcript to find an idea (because it was the most expensive finance paper in the library), which had articles pushing the gold mining stocks.
At that time, I was competing on a national level in Olympic weightlifting , (overhead lifting, the snatch and clean and jerk) and was thinking about weights when I was reading, and then a light went off in my head. When I lifted weights in the basement, I always had to be careful to avoid hitting the copper pipes. Interest rates were then going down, so I thought people would start buying houses. Thus the price of copper would go up for the pipes in the houses. And Kennecott Copper, (somewhat of a mining stock -- The Wall Street Transcript said mining stocks were good) should go up!
The stock was at 22 and change, and the May 30 calls were at 1/16. I didn't know how stocks moved, and didn't realize that a move to 30 in a month was not that realistic. On Tuesday, I went down to Merrill Lynch, and spoke to Bill Schaeffer, the VP of the Milwaukee office, and brought $700 cash to purchase 100 options at 1/16.
After asking me my net worth, (with my 1967 Buick Electra 225 capitalized at $600) he said that he would not be able to purchase any options for me, because it was too risky of an investment for me, and suggested that I buy 50 shares of Caesars World at 13 if I was really interested in stocks. I said no thanks, and left.
That Sunday, I was eating my 13th one egg omelet in the cafeteria, when Jerry from the weight room came running up to me (as I had told him in the gym what I was going to do) and asked if I bought the options on Kennecott Copper. I told him what happened at Merrill Lynch, and then he told me that Standard Oil of California had offered to buy them this weekend at 62 a share. Me, the macho weightlifter, then blew my lunch all over the table.
I called the VP at Merrill Monday morning and asked what the stock was at, and he said it wasn't open, and then late in the day, and I guess the stock didn't even open till Tuesday, and then it did at 55. (At least that was what he said -- now it seems funny that they couldn't open the stock for a whole day). Anyway, I spent the rest of Sunday driving to every McDonald's in the city of Milwaukee getting game tokens attempting to win the $250,000 back that Merrill Lynch "stole" from me.
But it was a lesson well learned. I've been trading in the market every since, and have loved it, studied it, and traded it with a passion since that day, and now, I can even tell the top traders on the street my story, and get some revenge for the "stolen" trade, sixteen years later, and know that the best research, like Jim's on Merck, can be found, and be profitable traded on the corner of Wall and Broad, or on LaSalle street in Chicago.
-- David Evansen
Schlotzsky's: I Just Drove Right By
There's nothing like the thrill of finding an undiscovered micro cap, researching the heck out of it, loading up, and watching it finally take off! My life-changing trade sounds like something out of a Peter Lynch book. I usually stick with tech, but after driving by a locally based sandwich shop called Schlotzsky's and seeing how full the parking lot was every day I decided to check it out. The more I learned the more I liked them; everything looked great, but they'd gone nowhere since their IPO in '95.
I started buying at 11 and the stock just sat. Quarterly earnings were getting better, new stores were going up, franchisees were happy. I realized that if I was ever going to make serious money investing that I had to trust my gut; the only thing wrong with this company was that nobody knew about it yet, so I backed up the truck. It ended 1996 at 10, and my wife's eyebrows seemed to raise a little higher when I assured her that their business was in great shape and that it really was a $25 stock.
This summer Schlotzsky's finally got noticed and took off. Now they're pushing 20, and just getting started. Every time I drive past their overflowing parking lot I think "thanks, Peter!"
-- David Murphy
Lipsome: Don't Know What I Learned, but Know How Much I Made
Dear Mr. Cramer, I found your article interesting. I also entered into what best might be described as a risky investment position which turned out well. Like your Merck out of the money calls this is like "Kids---don't try this at home."
It was 1989 and I had managed to triple my money in
to about $60,000. I thought the market was looking more unstable than usual. I saw a news item in the WSJ about a biotech company called
. LIPO was developing a technology to encapsulate drugs to improve efficacy and reduce side effects. This at least was a technology I could understand.
Like you I read everything I could about this potential investment -- annual reports, SEC filings, etc. The stock had fallen from high single digits to $2.00. There was over $1.00 a share in cash and a burn rate which projected almost 2 years before the company would run out of money. Would the company's progress in clinical trials move fast enough to allow for more financing and stock price growth? As you can see this was a wasting asset much like an out of the money option. So LIPO actually became a LEAP for me, with about a 2 year expiration.
I began buying stock at $2.00 in September 1989. The stock price gradually eroded and I kept buying as it went down to $1.00. By May 1990 I owned 40,000 shares at an average price of $1.37. for a total cost of $56,000! Was this crazy or what? With all my eggs in this basket I called the company regularly and spoke with management. I checked the
, etc. for any news items. Gradually, positive things began happening in clinical trials and biotech euphoria took off. By December 1991 my $56,000 investment/speculation was worth about $550,000!
What did I learn from this? What is the lesson? Sometimes being lucky is better than being smart. Sometimes you can be Right for the Wrong reasons. Sometimes you have to estimate risk/reward and make a decision to go for it. I'm still not sure what the lesson is, but I know that this trade changed my life.
-- Jim Mulis
Call Me a Fool, But Call Me Rich: Iomega
James, I was enamored by your piece, "Trades that made a difference". Here's mine.
I grew up poor and have always been driven. After getting a MBA and making a brief stopover as a credit analyst for a large bank in Texas (I couldn't take kissing ass in that culture to get ahead for ONLY 50,000/yr), I began training as a broker, the week after the crash in 87. I actually resigned from the bank the Friday before Black Monday. Talk about timing!
In any case, when I observed that the top "stock" brokers in my branch could not articulate a coherent strategy about what to buy, when to buy or even tell me how to read a daily graph, I thought to myself....If these idiots are supposed to be the best that we have then that is my angle....I need to differentially set myself apart from my competition by providing bonafide advice and learning and applying everything I could about stocks.
Well, where to start? I made it a practice long ago to observe what "the best" say and do and try to imitate them. So...I embraced the William O'Neil strategy and started reading everything I could about the markets. Not just reading but absorbing in my every being every tidbit of information I thought useful in helping me be a better stock market technician. So... along came Extraordinary Delusions, Battle for Investment Survival and Loeb's other stuff, Magee's Bible, Darvas's Stuff, O'Neil's Book, Lynch, Baruch, Eng, Weinstein, Soros, on and on and on.
Ok, so this is it. I sweated for 7 yrs building the business and finally made it to a Sr. Vice President for a major wirehouse. But no dough in the bank after kids, student loans, etc. The catalyst came for me when I made a strategic and calculated move to change firms and get the upfront dough to give me some bonafide trading capital.
So I made the move in early 95 and I relocated to boot from LA to NC. While I waited and dabbled and waited and dabbled, I uncovered my idea the stock that could change my life financially...the stock that could make a difference in my financial well-being for the rest of my life....
The stock was a small cap at the time with tremendous earnings projections over the next 12 months. It was largely underfollowed by Wall St. It was a pseudo turn around company with an aggressive and bold new ceo (kinda like Al Dunlop); they had a proprietary and innovative product offering that could be used by millions of people. It had "mass" appeal and tremendous reoccurring income. Earnings comparisons were easy. And finally it had tremendous negative resistance from the shorts.
The kind of once in a lifetime emotional and negative sentiment that could destroy the shorts if a mania occurred. So I bought my pilot position and pyramided appropriately. It was a powerful run, the biggest I had ever witnessed in such a brief time. After the splits and when all was said and done, I took 100,000 to 1.2 million and it changed my life forever. The stock, of course, was Iomega. And the lesson I learned is that stocks are only pieces of paper; they don't care about you. What matters is how the market of stocks fluctuate based on what people think they are worth. At the peak somebody thought the stock was worth 55 (A fool, perhaps a Motley one.)
I have made trades since then when I made 100,000 or lost 100,000 on the trade, but this one was the one that created a new lifestyle and gave me financial independence to learn to really play this game. And for that I am thankful.
-- Roy Mattox
For Me It was GM
JC, You asked for trading stories that changed the way you did business.
1979, with about two years of stock apprenticeship working as a specialist clerk on the floor. I leased my father's seat and started trading on my own. With about 100K I walked the floor as a registered market maker. I was playing mostly at the 200-to-300 share lot in order to get a rhythm and a style to what my trading patterns were going to be. Mostly oil trading and some techs.
It was all day trading. $300 - 500 was a good day and about all I cared to risk. After a long day of losing little lots I was heading for the door at 3:40 as I walked past the GM post a flurry of trading erupted and I just jumped in. Instead of my little lot trading I bought 3000 share and the stock never looked back. In about 8 minutes I took a point and a half out of GM.
WOW this is what trading is all about I thought. Two weeks worth of work in eight minutes and I almost walked out the door. This trade started my career in trading and I will never forget it.
-- Gene Cullen (one of The Cullen Family Traders)
Jim Cramer responds: GC, This is a fabulous fabulous story--just what I wanted to see. Thanks.jjc
CKE is My Baby
Jim Cramer, very inspiring indeed. You did your homework took a big risk and got a little lucky and never looked back. I am working on having similar successes. I don't have any huge success stories but I am accumulating a nice amount of small victories that are adding up. Up to now the best I got is a five-bagger in less than two years on CKE Restaurants, while increasing my position on dips because everything still looked solid.
I'm simply learning that these opportunities are available if you do your homework, have some convictions, and don't get too emotional. As an aside, you've made me think a lot about the emotional side of investing as the wisdom out there seems to be no matter what, never get emotional because it causes you to make stupid decisions. Keep knocking those walls down.
-- Joseph Reeves
Jim Cramer responds: JR, will do and thanks
One Great Trade Means Freedom
Cramer: Your Merck article is great! I only hope someday to free myself of working for others by getting a big one right!
I may be late on this, but it all occurs to me. With the proliferation of all the online brokerage, research, and investment publications, with E*Trade, AAII,
, (which is a bitchin' online zine, btw), you have a democratization of investing beyond what was previously imaginable. The next Warren Buffet, (or James Cramer, for that matter), could end up being some teenage kid with a cable modem and a few hundred bucks.
As for betting half your life's fortune on out-of-money-calls? That, indeed, is bold!
Thanks for sharing your stories. They bring investing to life!
-- Alex Hopwood, San Diego, CA