Back in June of '07 I decided to play in he stock market. I had no idea of what I was doing, all I knew is that I wanted to make a lot of money. As you might guess, the market doesn't always do exactly what you would hope and since I bought in the market has crashed. Some of my stocks have rallied recently to he point where I am breaking even again with them but the others are still looking pretty bad. The following is my experience and the lessons I have learned in the world of stocks and the economy.
First and foremost I wanted a stock that would earn me a lot of money. I didn't have a lot of money to begin with so I was looking for a cheap stock that had potential to grow a lot. I started reading about small-cap businesses and what analysts were saying about them. I read one article on smallcapreview.com that talked positively about a company called Gigabeam that makes high bandwidth wireless transceivers that are supposedly poised to disrupt the market for land-lines used for cable-internet. Since I believe that wireless internet, via WiMax and the advent of the iPhone and more portable wireless devices, is the future of computer technology this stock looked good so I bought some shares at $4.
Within two days the stock price jumped up over 40% and then the next day it was up over 50%. I was making a good amount of money and only three days had passed. Why not hold onto the stock for another few months and make 1000% profit, right? Not so. Now, less than a year later, the company is delisted from the NASDAQ and I had to sell it at $2 loss per share. The lesson from this is don't get greedy. If the price reaches a point that you are making reasonable money--sell. You can always reinvest the money again if you have reason to believe it will go up a lot.
The next two stocks I bought were based on instinct: Apple and Intel. I just really like these companies and as I already mentioned I thought the iPhone was going to be iconic (and I was right). I bought Apple at $132 and Intel at $24. Both went up and up. Apple hit over $200 and Intel was up over $30. It seemed my instincts were paying off. Did I sell? No. And in this case I'm not unhappy about that either. I still believe that Apple will reach $225 in 2009, and Intel is ruling the market and should bounce back. Currently though Apple is at $130 and Intel is down to $21. These stocks fluctuate with the market though and will grow rapidly once we start seeing the economy grow, I hope.
The last stock that I bought I tried using some statistical analysis to pick a good one. Using online software to sift through all the companies I came up with a filter for what companies I wanted to invest in. The basic structure of the filter was a mid-cap company, on the NASDAQ, in the healthcare sector (because I know a lot about science I figured I could determine the strength of a healthcare company), share price less than $10, profit margin above industry standard, low P/E ratio, earnings per share growth of around 20%, high volume of trading, and a lot of analyst coverage. Also, I didn't really care about dividends.
Using that filter I came upon OraSure. OraSure has created a fast and reliable HIV test that can use blood samples as well as saliva. They recently hired someone to their board of directors that is very capable of getting a product through the FDA for over-the-counter sales (the HIV rapid test is already used in hospitals and clinics but has not yet been given the ok for OTC use). The price I bought at was $8 and it is now down around $7. The market is weak but the company is strong so I figure it will bounce back soon. I will also make the prediction that once they are given the approval to sell their HIV test OTC the share price will jump up to around $12 to $13 or more. This is a good stock and I am very happy with it so far even though I am currently losing money on it. In the future I will definitely use a similar filter strategy for picking stocks.
I'm glad I went through this little experiment in stocks because I believe I have learned an enormous amount about how the market works (well it's really simple actually: fear drives the market down, speculation drives it up).
More to come soon from me regarding how I think individual stocks move and where the economy is headed regarding the sub-prime mortgage fiasco and the dropping value of the dollar and the correlated increase in oil prices. For now I would just like any comments on my stock decisions. Anyone out there?