Ah, Margin Call...

motordavid · #1 03-18-2008, 09:40 PM

Another story from the NakedCity; free lunch, debt, gimme-gimme,
sitting on top o'the world, etc. From the Yahoo stock message Boreds,
(which tend to be composed of scammers/screamers, et al.), but this
one sounds legit. And, hard to make this stuff up, if it isn't.

...

There is a lesson here, people...Edit: the BSC is BearStearns
GL,mD

"I am DEVASTATED! Lost $357K on BSC! I 18-Mar-08 04:04 pm
I started trading years ago, just casually, buying stocks here and there on momentum. I got really good and managed to get my account up to $90K at the start of winter, 2007. I felt like I was at the top of the world because I never had so much money.My TD Ameritrade account was leveraged 4:1, which basically gave me $360K of buying power. When I saw BSC go to $30 share on Friday I was so convinced it was a bargain and decided to buy 12,000 shares, basically my entire account on margin. I figured by MOnday it would bounc back 5-10% and i would dump it after that. I could not beleive what I was reading on Sunday when I heard the news about JP Morgans buy out at $2/share. I thought it was an error on CnnFn.com. 2$!!!! freeeking dollars! What the hell kind of crap is this! I dumped all my shares Monday morning thinking that there was no point in waiting. Looking at the price now I should have waited to at least minimize my losses, and I couldn't even get that. I am so devastated right now, I am out nearly $400K. I have a house but it has so little equity that I can't even sell it because it's worth less than what I purhcased it for last year. I already got margin called from Ameritrade. I spoke to someone at customer service and they were nasty as hell, freeking a-holes, I guess they are getting a lot of this crap right now and don't care how it hurting everyone. My freeking life is over, this will never leave me, I will be paying for this until I die. I should have never gambled in this market. This is the worst feeling in the world and I would not wish this on my worst enemy."

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vinuneuro · #2 03-18-2008, 09:51 PM

And people discover that leverage goes the other way too. Scary thing is you can trade on margins MUCH higher than that. What that guy did came down to greed and lack of discipline, he was a speculator nothing more.

rayxi · #3 03-18-2008, 10:26 PM

That, in a nutshell, is the difference between trading and investing.

vinuneuro · #4 03-18-2008, 10:32 PM

Quote:

Originally Posted by rayxi

That, in a nutshell, is the difference between trading and investing.

No, that's the difference between speculating and trading or investing.

A trader holds positions for a shorter term, mostly using technicals as tools. Investors are in for the longer term, and they mostly go on fundamentals.

rayxi · #5 03-18-2008, 10:59 PM

Quote:

Originally Posted by vinuneuro

No, that's the difference between speculating and trading or investing.

A trader holds positions for a shorter term, mostly using technicals as tools. Investors are in for the longer term, and they mostly go on fundamentals.

From John Forman, the author of The Essentials of Trading:

What separates trading from investing, however, is that generally in trading one has an exit expectation. This might be in the form of a price target or in terms of how long the position will be held. Either way, the trade is seen to have a finite life.

From the news article above:

When I saw BSC go to $30 share on Friday I was so convinced it was a bargain and decided to buy 12,000 shares, basically my entire account on margin. I figured by Monday it would bounce back 5-10% and i would dump it after that.

Looks like a perfect example of trading to me.

vinuneuro · #6 03-18-2008, 11:23 PM

I'll concede that you're right that, that is trading and not investing (and I don't think I used the word speculating accurately either); but speculating is a form of trading that usually involves leverage so there is that distinction.

x5GuyInLA · #7 03-19-2008, 01:12 AM

sounds like he bet his $400K marker on black and it landed on red

rayxi · #8 03-19-2008, 01:29 AM

Quote:

Originally Posted by vinuneuro

I'll concede that you're right that, that is trading and not investing (and I don't think I used the word speculating accurately either); but speculating is a form of trading that usually involves leverage so there is that distinction.

No doubt about it, there was speculating involved. Speculating can apply to trading or investing and does not require leveraging, though it's common practice to leverage (when you go out on a limb you might as well take big steps). When you assume risk with shaky or no evidence to support your trade or investment, it's speculating.

swesson · #9 03-19-2008, 02:25 AM

Quote:

Originally Posted by x5GuyInLA

sounds like he bet his $400K marker on black and it landed on red

yep

vinuneuro · #10 03-19-2008, 12:35 PM

Quote:

Originally Posted by rayxi

When you assume risk with shaky or no evidence to support your trade or investment, it's speculating.

That's what I thought when I made the original post. After yours, I had to do some research; and it seems that basically all buys into any financial instrument involve speculation- even the ones based on educated decisions (which makes sense to a degree). I believe futures trading is a good example of speculation because it involves highly leveraged trades.

Btw, I think professional equities traders, can trade on pretty high margins, ie. 16:1 margins.

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