Page 846 - How to Make Money in Stocks Trilogy

Black Belt Testing: Life-Changing Moments in Investing 113

questions or concerns from clients at all hours of the day was something he
found increasingly difficult because it disrupted the trading day. Besides, it
was psychologically draining. Some of his clients wanted to be in the market
all the time, even if the environment wasn’t right. By 1994, Jerry made the
decision to stop managing money professionally and returned all of the money
to his investors. But by this point, he also had enough confidence in the sys-
tem from several successful trades to begin investing his own money full time.

Lessons from the Trenches
In October 1999, Jerry bought Qlogic (QLGC) and made 150%. He could
have increased his profit even more but sold too late after the stock topped.
At that time, Jerry wasn’t as experienced about how to handle a climax top.
This is when a stock has a rapid price run up for one to two weeks after an
advance of many months and then rolls over. This climactic activity usually
occurs in the final stages of a stock’s advance.
The reason Jerry was able to buy Qlogic is because of his experience with
ECI Telecommunications. He bought Qlogic after it had already tripled in
price, which is almost exactly what ECI had done. This taught him a very
valuable lesson: winning stocks repeat themselves with similar patterns and
behaviors.
Jerry learned another valuable lesson with EMC in 1999. He bought the
stock at $68 but got shaken out and took a loss. He sold at $61. But the stock
went on to build a cup-with-handle base. Jerry learned to keep watching
stocks that didn’t work the first time he tried to buy them, because big win-
ners often give you another chance.
In November, he bought EMC again as it came out of a base at $75 and
sold it at $112 in 2000 for a 49% gain.
Then, in 2003, Jerry bought J2 Global Communications (JCOM) in
March and sold it in October after a two-for-one split for a 198% gain.
He learned that it was important to bag gains early in a bull market cycle.
That’s when market leaders really pop and the big money will be made.

Recovering from a Setback
Then a hard blow came for Jerry due to several factors, including what he
feels was overconfidence in his trading abilities. He lost half his money in a
drawdown. For a serious trader, losing a large amount of money can be the
darkest moment, filled with self-doubt and disillusionment.