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01 May 2006 @ 07:53 pm
How to loose $3 billion in one day  
Recently I decided to buy some stock. After couple of weeks of deliberation I decided to buy MSFT (Microsoft).
Wednesday, 2006 April 26, , after trades. MSFT cost $27.10 per share. I'm asking to buy 295 shares for no more than $27.11 per share.
Thursday, 2006 April 27. To my pleasant surprise, I bought 295 shares at $26.98 per share (so paid ~$38 less than expected).
During that day (Thursday), MSFT grew ~0.5%, so my wealth grew ~$40.
That was the end of my shareholder's luck...
Next day, Friday, 2006 April 28, Microsoft stock took its biggest one-day fall in more than five years (11.4%).

I lost $800.
Bill Gates, as the largest MSFT shareholder lost $3 Billion.

What is the reason for such dramatic MSFT plunge? --- Microsoft announced that they want to spend more money on research to fight against Google (Search) and Sony (Play station). Apparently majority of investors don't believe that Microsoft can spend this money efficiently. So, majority of investors decided to sell MSFT.
My only regret is that if I buy stock one day later, I would be able to buy 11% more Microsoft shares for the same amount of money
:-)

===
Microsoft's one-day stock plunge
Gates briefly acknowledged the stock market's reaction in a Seattle speech Friday.
"We announced yesterday that our [research and development] spending is going up even more," Gates said. "Some people are very enthused about those investments. Others were wondering why we think we need to invest so much. It really comes back to the optimism we have about these advances."
===
 
 
 
zhenkinzhenkin on June 7th, 2006 12:49 am (UTC)
Market always outsmarts you .... :-)
So by "lots of deliberations" you refer to our ICQ discussion about value vs. growth investment? :-) Just kidding....

So even such an established giant like MSFT can go down ? Even if you beleive in it's product and general market superiority.
The truth is - the presense of superior and promissing new products or existing and pupolar old ones is not enough. There are many other things that influence stock performance.

Anyways, please don't interpret my comment as sarcastic "what did I say?!"
:-)
Loosing $800 is not so bad. Bill Gates brobably feels a bit worse now... :-)
zhenkinzhenkin on June 7th, 2006 01:29 am (UTC)
Re: Market always outsmarts you .... :-)
Also...
If this is a real decline, it may not be a good idea to "average down" or buy more stock when it starts to decline in price.
Dennis Gorelikdennisgorelik on June 8th, 2006 12:10 am (UTC)
Re: Market always outsmarts you .... :-)
How could I (or you) know if it's a real decline?
:-)

zhenkinzhenkin on June 8th, 2006 01:03 am (UTC)
Re: Market always outsmarts you .... :-)
Are u willing to bet your money on the fact that it is not real? :-)
Dennis Gorelikdennisgorelik on June 8th, 2006 01:11 am (UTC)
Re: Market always outsmarts you .... :-)
I'm not going to invest till the next year anyway. By then I'll make my mind about further investment :-)
zhenkinzhenkin on June 8th, 2006 01:41 am (UTC)
Re: Market always outsmarts you .... :-)
I think you should not let one mistake discourage you
(if it was really a mistake, of course).
I wouldn't necessarily conclude that because of one loss with MSFT - investing is a loosing business in general...
Dennis Gorelikdennisgorelik on June 8th, 2006 01:50 am (UTC)
Re: Market always outsmarts you .... :-)
I don't think that investment is bad. I do invest and I'm going to invest in the future. I guess that I'm investing more than you :-). For example, I'm investing into FDIVX (Fidelity Diversified International fund) as 401k.
Aside of this 401K investment I'm not going to invest into anything else till the next year.
Dennis Gorelikdennisgorelik on June 8th, 2006 12:09 am (UTC)
Re: Market always outsmarts you .... :-)
By now I lost someting like $1457, because MSFT fell to 22.04(!). That is ~$5/share. That is more than 18%.
That's a lot, considering size of Microsoft.
zhenkinzhenkin on June 8th, 2006 01:07 am (UTC)
Re: Market always outsmarts you .... :-)
Some investing spacialists advise to sell the stock when it falls more than 7-8% from it's purchase price. That way you can cut the loss while it is still relatively small.
Dennis Gorelikdennisgorelik on June 8th, 2006 01:20 am (UTC)
Re: Market always outsmarts you .... :-)
That's a questionable advise.
It's better to buy stock after it fell and sell after it grew. This way you have better chance to end up with profit.
But all these "blind investment" advises aren't really helpful.

Instead you have to know company which you invest into and be sure that the company will be profitable in the future.
If you managed to get real info about future company's profitability, then you just compare your estimations with current P/E ratio and make your investment decision.
zhenkinzhenkin on June 8th, 2006 01:39 am (UTC)
Re: Market always outsmarts you .... :-)
But how do you know if you decision was right?
Or it can never be wrong?
When do you get out if you made one?
Do you wait until you loose 50% or 75%? :-)
Dennis Gorelikdennisgorelik on June 8th, 2006 01:44 am (UTC)
Re: Market always outsmarts you .... :-)
Because you know company products, customers, profits, competitors, ...
Basically you wait on company's dividents.
If company's stock ~worth future dividents -- you can sell the stock. But not if it's underpriced.
zhenkinzhenkin on June 8th, 2006 01:48 am (UTC)
Re: Market always outsmarts you .... :-)
"real info about future profitability" can only be obtained with time machine. :-)
other than that anything about the future is just a guess/hypothesis, there is nothing "real" about it.
that strategy sounds exactly like "blind investment" to me. :-)

Potom stock may fall for a reason. Because many investors don't beleive in it anymore (at least for awhile). You can certainly choose to sit out for a few years and verify if they were right or wrong... :-)
Dennis Gorelikdennisgorelik on June 8th, 2006 01:54 am (UTC)
Re: Market always outsmarts you .... :-)
1) Right - it's impossible to predict exact future [profits]. But it's possible to distinguish between good probability of profits and good probability of losses.
2) It seems you are not interested in long term investments. But only long term investments have sense for regular investor (like you and me).
All these short-term stock games are nothing more than Vegas entertainment :-)
zhenkinzhenkin on June 8th, 2006 02:09 am (UTC)
Re: Market always outsmarts you .... :-)
Let's take an example - MSFT.
Started to trade publicly in 86 , their real top was in 2000 when stock reached about 60$/share.
Since that time it never rose above may be ~42$.
Say you decided to buy it after the stock collapsed in 2001 to about 20$(it's underpriced and the company has potential, right?). By now, after 5 years, you would make about 2$ on each share.
zhenkinzhenkin on June 8th, 2006 02:29 am (UTC)
Re: Market always outsmarts you .... :-)
I think for MSFT in particular, a good opportunity to make money on it was to buy in say, 1996, a few years after it's IPO when the company has matured a bit and sell some time around it's peak in 2000.
Now it is not clear if and when MSFT's golden times will come back...
Dennis Gorelikdennisgorelik on June 8th, 2006 05:04 am (UTC)
Re: Market always outsmarts you .... :-)
In 1996 it wasn't clear that MSFT's peak price would be in 2000 :-)
zhenkinzhenkin on June 8th, 2006 03:55 pm (UTC)
Re: Market always outsmarts you .... :-)
1. It was evident from fundamental data and stock performance up to date that stock had a potential for run-up.
2. It is impossible to predict when the pick price will occur, but on the other hand it is possible to recodnize certain signs of stock topping out at a particular moment. That is why you have to watch it after buying ...:-)
Dennis Gorelikdennisgorelik on June 8th, 2006 05:28 pm (UTC)
Re: Market always outsmarts you .... :-)
"It was evident from fundamental data" - no, it wasn't evident. It's always easy to speak past tense :-)
Try to make prediction now - let's check how accurate it would be in reality.
For example - what is good stock to buy now and when there would be good time to sell it?
zhenkinzhenkin on June 8th, 2006 07:19 pm (UTC)
Re: Market always outsmarts you .... :-)
1. Right now there aren't so many - market is in downtrend
2. It is possible to pick a good stock to buy, but:

- even if you follow all the fundamental and technical signs , there is still a possibility of error. It is useful to watch the stock and get rid of it it it's price fell more than certain percentage below your buy point. The stock can certainly still start going up even after falling considerably below your buy point, but it is possible that it will not. Of course, you can always choose to bet with your money on the fact that some day in the future the stock will go up again, but it may not happen for awhile.

- i don't think it is possible to predict exactly when it will be good to sell the stock.
But again you can track you stock and recognize the moment when it will be time to sell. The moments may not be ideal, but at least it is possible to make profits and avoid painful losses.
Dennis Gorelikdennisgorelik on June 8th, 2006 08:40 pm (UTC)
Re: Market always outsmarts you .... :-)
So, basically what you are saying is:
even if you put a lot of efforts into your Voodoo magic, it still can fail :-)

Would it at least have better probability of success than probability of failure?
zhenkinzhenkin on June 9th, 2006 01:00 am (UTC)
Re: Market always outsmarts you .... :-)
Yes. It will have a much higher probability of sucess. :-)
Just not a guarantee of sucess. :-)
Dennis Gorelikdennisgorelik on June 9th, 2006 03:26 pm (UTC)
Re: Market always outsmarts you .... :-)
So you know that good stock analysis strategy, you believe in it, ... do you put your money into implementation of this strategy?
:-)
zhenkinzhenkin on June 9th, 2006 03:39 pm (UTC)
Re: Market always outsmarts you .... :-)
I've just finished reading about it. :-)
Market is in down trend right now.
As soon as it will be in confirmed uptrend, I will put my own money into it.
Right now market is volatile...
zhenkinzhenkin on June 22nd, 2006 02:06 pm (UTC)
MSFT stock is going up again.
Good news!
Their stock has been moving upwards for last 7 days.
Dennis Gorelikdennisgorelik on June 22nd, 2006 02:53 pm (UTC)
Re: MSFT stock is going up again.
It's $23/share so far... still below even "after plunge price" ($24/share) let aside the price when I bought it $27/share...
zhenkinzhenkin on June 22nd, 2006 04:00 pm (UTC)
Re: MSFT stock is going up again.
But the dynamic is positive.
If it was just a one/two day jump - that's one thing.
But it has been moving up for 7 days straight.
There is some hope here ...
Dennis Gorelikdennisgorelik on June 22nd, 2006 05:44 pm (UTC)
Re: MSFT stock is going up again.
There is always some hope :-)
Dennis Gorelikdennisgorelik on September 20th, 2006 08:05 pm (UTC)
YAY!
Finally MSFT is over $27/share
It's $27.16 now.
So finally I made some profit from my MSFT purchase.
It just took 5 months.