About

For the time being, I’m an anonymous blogger going by the name chartsandcoffee (I’ve decided that all lower case is easiest). I also go by “C&C”, “CC”, or “Charts.”

The blog combines my two passions – stocks and online communities. I’m a male in my 30s and I’ve been trading stocks and participating in online communities for almost 20 years.

I became interested in the stock market in fourth grade when our class participated in a stock market game. Each student was put on a team and the team was given a $100,000 of fake money to invest in the market. I remember that my favorite stock was listed in the newspaper as “CapCits.” I had no idea what the company did but I did know the share price was hundreds of dollars (I think it was a $400-500 stock) and that it seemed to go up almost everyday. I really liked that. CapCits was actually Capital Cities/ABC and was merged into Disney in February 1996.

This was the late 1980s/early 1990s and my parents purchased a 80286/12mhz computer with a 2400 baud modem (later upgraded to a 80486 with a 14.4k and then 56k modem). This is when I first ventured into the world of bulletin board systems. I ran two single line WWIV systems at different times and taught myself to program in the C programming language by modifying the BBS system. I found it to be really neat that the Wikipedia article actually says “There are many professional “C” programmers who got their start poring over WWIV source code.” It seems that by chance I had picked a good program to hack at.

Because I was so involved with computers and programming, I was quite the guru on computers and therefore wanted to buy stock in computer companies. I was so intrigued with CapCits that I told my mom that I wanted to take the little money I had saved up and put it into Intel. I think I bought about 10 shares. I really didn’t have a good reason for the stock purchase although I did know that Intel was pumping out new processors every 18 months or so and liked the idea of owning a piece of it.

Intel ended up going up at least 300% during the time I owned it.  This kind of return kept me interested in stocks. Did I sell because I knew the bubble was going to burst? No. Complete luck. I was in college and needed the money.

I also bought some IBM at the same time I purchased Intel because it was IBM and it had gone down a lot in price. My theory was that IBM was not going out of business and that it couldn’t go any lower. This kind of logic can destroy a trader but I got really lucky. To make matters worse, I think I liked the stock because I was really high on OS/2 and thought it would be much more successful than Windows. Computer people know how that worked out. Non-computer people likely haven’t heard of OS/2. Enough said. I think the stock was also up 200-300% during the time I owned it.

The last stock in my 1990s portfolio was Amgen. The truth is, I can’t remember whether I actually bought this one or just think I did. What did I know about Amgen? Nothing. There was a “bring your parent to school day” in 5th grade and someone’s parent was a stockbroker. I asked him what his best stock pick was. He said Amgen was his best pick. So I told my mom I wanted to buy 10 shares of Amgen. We were off to Merrill Lynch with another order. Commissions were about $30 a trade back then so each trade was about a 10% loss from the beginning. Usually taking a tip without your own research does not work well. In this case, this guy gave me one of the best picks of the 1990s.

Full disclosure: I also bought some DuPont for no reason at all. That stock never did anything.

In the late 1990s, the tech bubble was upon us. I had a part-time job in college working for a software company and saved some money to do some trading. I loaded up on names such as Global Crossing, Covad Communications and Worldcom. I didn’t have a great reason to buy, but again I liked the fact  that they were going up. Everyone seemed to be a stock market genius during the tech bubble.

The story doesn’t end sadly. I sold these junk stocks off before everything crashed because I needed the money for school. However, it did scare me that 2-3 years of working at the software company would have gone out the window if I had not had the good fortune of having to liquidate those stocks for cash. I would have been wiped out.

Once I started working, I started trading stocks again. I also started trading options. I read every book I could find at Borders on stocks and options. I traded purely on fundamentals. I scanned through Yahoo finance and reviewed PE ratios, PEG ratios, growth rates and all the normal things that fundamental traders look at. I read Barron’s every week like it was gospel and watched CNBC everyday [I haven’t watched CNBC in years – it can only hurt your trading.]

I had decent success but again much of this was luck. This was around 2003-2004 and I happened to be getting back into trading when the market was on the upswing. I tried to be like Buffett and follow industries that I knew about. However, unlike the early 1990s when I was a computer geek/guru, I really didn’t have exceptional knowledge on any industry because I had been in conventional school for 7-years. I never forgot “what could have been” if I would have held my tech stocks through the tech crash.

I was also getting frustrated with fundamental analysis because I would go long or short a stock and even though “I knew I was right” the stock would go in the other direction. I found myself getting very frustrated and angry.

For example, I bought puts on St. Joe Company in 2006 because I knew Florida real estate was in the toilet. I think I bought puts when the stock was at about $52. The earnings report came out and the stock tanked down to $42. I was up several thousand dollars and celebrating in my office at work. The next thing I know the stock reversed course on no news and went from $42 back up to over my entry price. I ended up taking a small loss and saw all of my big gains evaporate in a matter of minutes.

I felt that I was scammed out of my money but I wanted to learn why this happened. I later learned that there was major support at $42 and this would have been a great spot to cover. It was right on the chart! I had studied technical analysis at that point but was still of the thought “I’ll take the best from both worlds and mix it up.” I thought JOE was going to $0 and I was shorting it for the long term (well until I couldn’t take the pain of losing that huge gain in 10 minutes)!

That trade was a good loss because I introduced me to using technical analysis to manage risk. If I had only moved my stop down as JOE moved down, I would have made a nice profit once it reversed.  I haven’t traded using fundamentals in 4-5 years and now rely solely on technical analysis for my trading.

My basic trading philosophy is a low probability-high reward strategy. My goal is to limit bad trades to 4-10% (depending on the beta of the stock). I’m trying to get anywhere between 10-30% (depending on the beta of the stock) out of my winners. I don’t run the math that often, but generally if I can win over 40% I’m at least breaking even. If I’m over 50% I’m making a nice return. At times I get it up to 60% and I’m really doing well. I’ve never been able to break the 60% barrier over an extended period of time but don’t need to do so (but would certainly like to do so).

The opposite trading strategy is to have a high-probability-low reward strategy. If you hear successful traders touting that they win 80% of the time, it is possible, but their return on those trades is likely very low and the loss on a losing trade is likely high. This means that if a trade is a loser and a big loss, it can take a slew of winning trades to get back in the green. There is no free lunch.

I’m not knocking this kind of system, but I am successful with the low probability-high reward strategy and therefore that is what I use most of the time.

Another thing I wanted to mention is that I don’t trade options anymore. I haven’t traded them in years. I think various options strategies have their value. But, I think you have to master trading stocks before you can move onto the next progression. I think traders would be better suited learning to trade one instrument (such as SPY or QQQQ) properly before moving onto to specific stocks and then options. I think the options market is stacked against most traders. Not only do you have to get the movement of the underlying stock right, but you have to have the experience to know whether you are getting a good price on the option (whether selling or buying). There are shops with mathematicians pricing options and I know I can’t beat them. You’re also not just making a bet on the movement of the stock, but on other variables such as volatility. How many traders have purchased a call option and the market shoots up and you find that you have not made nearly as much as you thought you would because volatility has come down? I’m also happy with my returns without the leverage and writing covered calls never really worked as well as it sounds in a textbook.

To circle back, I consider this blog the next generation from my “WWIV BBS days.”  I’m fortunate enough to be able to combine my two passions of stocks and online communities into this blog.

In addition to covering the stock market, from time to time I will branch out on topics that are interesting to me that I also feel are interesting to my readers.

Thanks,

CC

Email: chartsandcoffee  [at]  sbcglobal.net

I enjoy reading emails from readers although my preference generally is for questions and ideas to be posted in the comments section unless the email is of a personal nature. Also please understand that this blog is about sharing ideas and a place for me to share my thoughts. I do not provide advice about trading securities (see disclaimer at the bottom). Therefore, please do not send me email asking whether I think it is a good idea to buy a particular stock. I will not be able to respond to you.