If you have lost money on stocks in the past few weeks, perhaps you should turn away now...
An idiot's guide to playing the stock market
If you have lost money on stocks in the past few weeks, perhaps you should turn away now. At the end of last month, as the sky was falling in on markets across the globe, I butted into an office debate about the apocalyptic nature of events with an observation that, I see now, must have been as annoying as it was ill-informed. "Surely any idiot with money can play the stock market? How hard can it be?"
Stung by the response, I set out to prove my point. After all, when it came to matters financial, I was that idiot - and I would find exactly how hard it could be. An attempt to persuade any of my close friends to front me US$100,000 (Dh367,350) to invest in the interests of investigative journalism fell flat. Undeterred, I found the website umoo.com, and signed up for a seven-day virtual-trading contest that would test my mettle in a head-to-head trade-off with several other pretend players on the most volatile of markets - the New York Stock Exchange.
My natural inclination was to cash my imaginary chips and buy a virtual yacht. Instead, I set about selecting my stocks. To keep things simple, I decided to place $20,000 each into five companies, sit back and let market forces do the work. The competition was to run for a week. I had read all about playing the long game and, once I'd jumped in, planned to stick by my choices. Actually, that's not true. I was going to trade every day, but quite frankly I forgot. Plus I mislaid the password. To be honest, I had forgotten about the whole thing by day two and it was only when someone asked me how my stocks were doing on the penultimate day of the competition that I thought to look.
I realised, picking the right stocks was the key. I tried some research, but this was Sept 30 and most of the advice I found was of the "head for the hills" variety. This was, after all, a day when the graphic on the front page of The Wall Street Journal, headlined "Stocks in a spin", showed the Dow plunging earthward. This is how my thinking went - and Warren, George, you might want to pay attention to this. Where do Wall Street types eat when times get tough? McDonald's, right? And when times get really, really tough? At soup kitchens, of course. Easy. Place $20,000 each into McDonald's and Campbell's Soup.
Having exhausted my supply of homespun financial "wisdom", the next moves were trickier. Walmart, home of all things cheap, seemed like a good bet and without a shred of research, in I plunged. Two more to go. I was getting bored now. I was also sitting in front of an Apple laptop, so that was obviously a sign - always good to have at least one "gut" purchase. And then I took another look at the financial pages. "Citi, US Rescue Wachovia," read the Journal. "Latest shotgun deal creates nation's third-largest bank."
I recalled one of my perpetually impoverished mother's favourite sayings - "The banks never lose" - and, despite the evidence to the contrary, felt it would be churlish to ignore her words, so in I went. Imagine my surprise when I checked a week later. Not only had I not lost money, but I had actually made a 4.13 per cent profit - $4,129.11 - and was ranked second in a field of 41. Admittedly, three of my choices had tanked: Walmart down 7.85 per cent, McDonald's 10.15 per cent and Apple 20.39 per cent. But guess what? Campbell's Soup, up 0.34 per cent in a week, had made me $67.34 - and good old Wachovia had bounced back 58.18 per cent, to the tune of $11,631.36. And it was all mine. Virtually at least.
So, how hard can it be? Listen to your mother. And read the financial pages. firstname.lastname@example.org