A Nostalgic Look at my AOL Trade
It is my nature to trade. I was born to do it in this lifetime. In this lifetime
I am a trader. I trade stocks for a living. I trade with my own and other
peoples money. I have partners that have confidence in my ability to bring home
the bacon. I will share with you a specific trade that I made 8 years ago. It
was post Labor Day 1998. The market crashed in August of that year. It was the
year of the Asian contagion. Remember that? It was the time when Long Term
Capital management imploded after applying a theory that won the Nobel Prize for
economics by two folks they hired to execute or put the theory in practice. The
theory proved to be invalid. The implosion of Long Term Capital management
triggered a secular bear market that grew in stature and took a major bite out
of the hide of investors.
We all know what happened. The tech bubble broke and the bull market that
created unprecedented wealth gave back a large percentage of it. In 1982 Bill
Gates had little. At the height of the bull market in 1999 Gates was worth close
to 100 billion dollars. He is now worth near 40 billion. Markets rise and fall.
So about the trade. I came back from a trip abroad and had to adjust the stocks
I had long positions in. I didn’t consider selling short at the time. I was a
long only operator. That was that. When I came back from the trip to survey the
damage done I chose to get aggressive so that the losses could be made back
quickly. I traded all of the shares of Disney that I carried on the books and
that was a substantial amount and traded that name brand for an unknown and
unproven player in a relatively new medium and that was AOL.
This happened in the summer of 1998. I bought a ton of AOL at 10 bucks a
share and held it too long. I sold it in the summer of 2001 at 50 bucks a share
and could have done better had I sold at the top when it traded at 80. So the
stock raised 8 fold and I sold it on the way down and realized a 500% gain in 3
years. That was a great trade and I had clients at the time and some of those
folks actually had the balls to call me up and complain because of the capital
gain triggered after the trade was completed. One guy actually fired me accusing
me of destroying all of his hopes and dreams. One year later AOL traded at 7
bucks a share. Yes that is right. It dropped from peak of 80 in 2000 to fall to
a low of 7 in 2002. That was a great trade. One of many trades, some great, some
horrid. Lessons are learned from every trade made. Lesson one of course and the
most important lesson of all. Never overstay the trade. Don’t linger but stay
committed to it and be nimble about it. That is that.