BennyEast.Com/Blog The official blog of Kenny West

You Win Some, You Lose Some

Today I sold an investment I'd been holding on to since 2008.  The investment was for just under a thousand dollars worth of shares in a publicly traded company.  The total amount that I bought the 10 shares for?  Close to 100 bucks a share.  The total amount that I sold the shares for?  About 70 cents.  Yes.  Ouch.  That means after commissions, I got 2 dollars back on that initial investment of nearly a grand.  Would have been better off just booking a few nights at a luxury hotel.

Something like a 99.9 percent loss.

But here's the thing, I'm actually ridiculously excited about it.  Why?  Well, it's because this year I was able to make the trades to cover the loss.  When you sell a stock at a loss, you actually get to use it against your capital gains to pay less taxes, it's called Tax Loss Harvesting.  So why would I be so happy about that?  Let me explain...

Waaaaaay back in 2008, I really had no idea what I was doing when I would buy stocks.  I'd just kind of make trades based on... Actually I almost have no clue what my trades were based on.  Looking back at some of the trades I made I'm just like, what was I THINKING?  I have no idea.  Apparently I wasn't.  I mostly just let others do the thinking for me and followed whatever website had trades listed.  Mostly I was getting my ideas from this one site that traded on a trend, but the problem with that is, when you get a market crash, like we had in 2008/9... Trends tend to reverse.  This, by the way, is the worst way to trade.  Just getting your stock tips from some website, or in my case, a web TV show made by some random guy in Canada, isn't the best idea.  Especially when you are trading with your hard earned cash.  If someone ever tells you about a "hot stock tip" even if it's a web TV show that was featured on various money news sites ...

Don't listen to them.  Trust me.  And especially if it's a friend or coworker trying to tell you a hot stock...  Just, do your own research instead and decide if that company is actually a company you'd want to won shares in.

Well the fantastic news is that I think much better now.  Nearly every trade I've been making in the last couple years has turned out to be pretty solid.  I've still had a few rough ones, but nothing that ended in a loss at all actually.  I just didn't get the price gain I wanted in the time frame, but I did collect some dividends for waiting it out and being patient with the stock.  Now, I've tweaked my trading and investing process over the years, and I'm really getting excited at how well it's working.  In fact, it's working so well, that I was able to finally let go of this bad apple stock that I purchased back in the day and I'm still ahead as far as capital gains go, even with a 99.9 percent stock loss on one of my trades, I'm still in the green.  And that's what excites me.

When you can start to see how well you are evolving and how much better you are getting at something...  That's super cool.  I remember seeing this when I first started playing guitar.  Or recorded songs.  Listening to the old compared to the new... It's really neat to see positive changes happening.

There's too much for me to cover as far as how stocks work or how trading works, or how investing works (maybe a whole other series of blogs), but I will simply say that even though I lost that money, I'm actually glad that I made that specific trade.  It taught me a lot about how to effectively evaluate which stocks will most likely turn out great in the future and which ones could sour.  This trade in particular is an interesting stock.  Many factors were at play to push the price from nearly 100 dollars a share in 2008 to 70 cents today.

This is kind of a quick little analysis of what happened...

First was the financial crisis in 2008.  That clobbered the stock market in general.  This company then saw further trouble and never recovered for a few other reasons... one reason has to do with the price they can charge for their product.  They are in a highly competitive industry with lots of other companies all doing the exact same thing they do, so unless you can do something that absolutely no other company can do, it's tough to really charge a premium on the price of your product.  Every industry is different as far as something like supply and demand goes for setting a price, and of course there are other items that factor in, like how much it costs to make the goods or supply the service in the first place.  But some industries are stuck selling at what's called a commodity price.  This is basically... a generally agreed on price (it's a bit more complicated than that, but for the sake of this little blog post we'll just say that) for how much that product will cost on any given day.  One example of this is a barrel of crude oil.  Another is a bushel of wheat.  The price for this particular commodity, which has to do with those big cargo ships that transport goods around the planet, plummeted.

To make matters worse, the company is based in Greece.  So because of their financial problems as a country, there is a lot more fear and uncertainty surrounding the company and its shares driving the price even lower.

Anyways, the long and the short of it (Get it?  Long and short...  Long and short are types of trades... Annnnnyways) is that I learned a TON about looking at companies on the micro and macro level.  Looking at how world events might effect their business model, and how governments can pressure businesses, or prices of commodities can turn a very profitable business into one that is just barely able to scrape by on the bottom and top lines.

When I evaluate a stock nowadays I have almost 100 different metrics that I look at.  I also make excel sheets to compare stocks to one another so that I select the best company to trade at the best time.  I now have an entire bookmarked selection of websites that I use to evaluate all kinds of different aspects of a company to decide if it fits for me and my trading strategy.

I'm hoping as I go forward to further tweak this process.  The key is to never stop learning, and to never stop reviewing processes.  To always strive to be better even if you think it's the best it can get.