Page 442 - How to Make Money in Stocks Trilogy

312 INVESTING LIKE A PROFESSIONAL

total of $850. It was mostly for fun. Each classmate began with one $10 share
in the fund. Marshall Wolf, then with National Newark & Essex Bank, and
later an executive vice president at Midatlantic National Bank, had the thank-
less job of secretary-treasurer, keeping the records, informing the gang, and fil-
ing and paying taxes each year. I got the easy job of managing the money.
It’s an interesting account to study because it proves you can start very
small and still win the game if you stick with sound methods and give your-
self plenty of time. On September 16, 1986 (some 25 years later), after all
prior taxes had been paid and with Marshall having later kept some money
in cash, the account was worth $51,653.34. The profit, in other words, was
more than $50,000, and each share was worth $518. That is nearly a 50-fold
after-tax gain from less than $1,000 invested.
The actual buy and sell records in the accompanying table illustrate in
vivid detail the execution of the basic investment methods we have dis-
cussed up to this point.
Note that while there were about 20 successful transactions through
1964, there were also 20 losing transactions. However, the average profit
was around 20%, while the average loss was about 7%. If losses in Standard
Kollsman, Brunswick, and a few others had not been cut, later severe price
drops would have caused much larger losses. This small cash account was
concentrated in only one or two stocks at a time. Follow-up buys were gen-
erally made if the security moved up in price.
The account made no progress in 1962, a bad market year, but it was
already up 139% by June 6, 1963, before the first Syntex buy was made. By the
end of 1963, the gain had swelled to 474% on the original $850 investment.
The year 1964 was lackluster. Worthwhile profits were made in 1965,
1966, and 1967, although nothing like 1963, which was a very unusual year.
I won’t bore you with 20 pages of stock transactions. Let me just say that the
next 10 years showed further progress, despite losses in 1969 and 1974.
Another period of interesting progress started in 1978 with the purchase
of Dome Petroleum. All decisions beginning with Dome are picked up and
shown in the second table.
Dome offers an extremely valuable lesson on why most stocks sooner or
later have to be sold. While it was bought, as you can see, at $77 and sold
near $98, it eventually fell below $2! History repeated itself in 2000 and
2001 when many Internet big winners like CMGI dropped from $165 to $1.
Note also that the account was worn out of Pic ’N’ Save on July 6, 1982, at
$15, but we bought it back at $18 and $19, even though this was a higher
price, and made a large gain by doing so. This is something you will have to
learn to do at some point. If you were wrong in selling, in a number of cases,
you’ll need to buy the stock back at higher prices.