Wednesday, July 18, 2007

More on AAPL, YHOO and Lunch Money

On Monday I bought another 1000 shares of YHOO in my IRA, but on Tuesday pre-earnings it had run-up a bit in only a day, and I figured unless Yahoo reported something stellar (which didn’t seem likely) it would get smacked by at least the amount it had run-up pre-earnings, so I took my one day profit. The post-earnings smack down did indeed seem to play out, whether that’s on YHOO or the NASDAQ in general, I can’t really say yet. There may be more hell to pay in the market for YHOO, but regardless, I do believe it’s undervalued based on its scale relative to the competition.

Scale has value, and I don’t think this factor is currently anywhere near fully-baked into YHOO’s stock price. I’m hopeful however, it is baked into the way Yahoo will run itself as a business. As I have said, I am looking at this as a 10 year hold.

Psychology is everything when it comes to successful trading. I think I have developed (finally, and before I completely ran out of money) the discipline to not do anything very stupid, but trading-wise in my brokerage account I have really been enamored with the quick trade that makes ~$150 with the risk of losing $100 or so. I’m just trying to get into the habit of making money on my trades. I’ve implemented only one rule: if you made money, don’t second guess yourself at all and the way things have gone with the lunch money trading, I haven’t wound up needing to second guess myself for a couple of months.

Trading is something where you can get immediate results, and then new results, and then 2 minutes later results like “Argh, if I would have held 2 minutes longer I would’ve made another $200!” As long as I made any money, no second guessing. Second guessing is reserved for losing, and while I am particularly adept at second-guessing myself, it's a good rule.

It is interesting for me to see my own difference in psychology with my brokerage account versus my IRA. The main distinguishing factor between the two accounts is with my brokerage account, I look at this as money I kind of sort of need right now, and I do not feel that way about my IRA. So my psychology is actually completely different.

As a trader in my brokerage account I am currently gravitating towards the quick trade that lasts less than 15 minutes total. While I think there are “smarter” things to do, like short-term swing trading (buying and holding, perhaps intra day, perhaps for a few days, but either way much longer than 15 minutes) my psychology seems such that I’m more suited to that in my IRA. Why? Well if YHOO goes down $3 by Friday, I’ll be down over $6000 in my IRA (currently holding 2000 shares 1000@ 27.25 or so, and 1000 @ 26.08) as a result of YHOO, but I will not care. I really do believe YHOO will bounce back and I really am looking at this as a 10 year hold. Short of losing more than a quarter of its worth very swiftly, the day to day machinations of YHOO, even if they result in what looks like $6000 in losses won’t bother me at all.

However, if the same thing happened in my brokerage account, it would get in my head in a very different way. I have two goals here presently: one is to play to my strengths and my own psychology. This means I will probably stick with the lunch money trading (like today’s two 1000 share lots of AAPL that resulted in a gross gain of $180 – but only ~$150 after you factor in fees, commissions, etc) in my brokerage account and play around with swing trading a little bit in my IRA where I have more of a stomach for it). But if the results of swing trading in my IRA are good, I would actually like to change my own psychology to the point where I could make similar trades in my brokerage account Whether or not that is a real possibility or pure folly is unknown to me at this time, but I’m game to collect at least a little bit of data in the name of research.

I have my eye on one stock in particular only because I’ve watched it for about two years now. It’s a pharmaceutical company that has been sort of struggling for the last couple of years. I am big on scale, but I am also big on thinking things that make you think you feel better, or actually do make you feel better and live longer will be…very popular and profitable at least while the baby boomers are still alive. More on this later if I actually pull the trigger on the trade.

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