Thursday, June 12, 2014

Forget everything you ever learned about the stock market...

For those who don't know, I graduated from William and Mary with a degree in Finance. What I really meant to do was get a degree in Accounting, but by the time I realized my mistake I was a junior and it was too late.

I remember very clearly my first finance class. I had just completed the last of my business administration classes (the gen eds of business) and we were now beginning to take major specific classes. In our first class our professor told us a story about an experiment that had been done. In this experiment, one person threw darts at the stock section in the newspaper and randomly chose what stocks he would purchase based on where his darts landed. The other person used data, research, and carefully valuated each company (using various valuation methods that we would be spending the next two years learning) before choosing which stocks to invest in. In the end it was a wash. Sometimes the dart method would win, sometimes the research method.

So basically, I left the  first class of the rest of my college career with the knowledge that the next two years would be pointless, the stock market will always be a great mystery and yes, I should have majored in accounting.

So, based on the epiphany I've done my own sort of experiment over the past five weeks. Despite the many valuation classes I took, I have my own simple theory on how to make money in the stock market.

Step 1: Create an E-trade account.

Step 2: Visit the Yahoo Finance website each morning at about 9:30. This is when the markets open. If you follow the link here you find a section entitled "market movers". Take a list at this section and pick a stock that has a high % increase for the day.

Step 3: Go to your etrade account and type in the symbol for the stock you picked, look at the 52 week range and see if your stock is on the "low side" of that 52 week range. Yep, that's as technical as I get. If it is on the low side, go ahead and buy it. Then continue to check the stock throughout the day, once it goes up enough for you, sell it. Sometimes it might take a day or maybe even a week or two before it goes up enough for you to sell.

That's it. On April 30th I started with $1000. In the past five weeks I have bought and sold four times and as of today I now have $1,197.92. That is a 16.5% increase over five weeks! Not. To. Shabby.

It's important to know that it E-trade will charge you $10 each time you buy and sell, so you'll really need to start with about $1000 to make it worth your while. The 16.5% includes the cost of buying and selling.

So, there you have it. That's how you make money in the stock market. Now, I never lost money with any of the transaction I made in the past five weeks but I'm guessing it will probably happen one keep that in mind :)

Below are the details on what I bought and sold.

April 30th Buy 26 shares of Twitter at $38.155$992.03
May 1st: Sold 26 shares of Twitter at $40.47$1,052.22
Profit Made$40.19
May 1st: Buy 145 shares of MACK at $7.12 each$1,032.40
May 23: Sell 145 shares of MACK at $7.41$1,074.45
May 27th: Buy 520 shares of IHT at $2.03 each$1,055.60
Sold IHT on 5/27 for $2.23 a share$1,159.60
May 28th: Buy 32 shares of Twitter at $34.64$1,108.48
June 12th: Sell 32 share of Twitter at $36.88$1,180.16
Total Stock Value$1,197.92
Percentage Increase16.52%

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