are we in a bear market
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losing money in the stock market ?
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| losing money in the stock market |
Shorting a stock is a bet that the share price will fall. Traders borrow securities and sell them, expecting to buy them later at a lower price and then return the stock to the lender. Then they roll around in their money.
Unless things go wrong somehow.
A very unlucky trader for whom something did go terribly wrong was profiled on MarketWatch on Friday.
Apparently, this gentleman had $37,000 in his brokerage account and at least 1 short position -- in the pharmaceutical company KaloBios Pharmaceuticals.
Before Nov. 19, the chart for KaloBios looked like a flat line. The stock was worth only a couple of bucks. The company was floundering. Flailing even. Things were not looking good.
But then, as the trader turned his attention elsewhere, the price went straight up in after-hours trading as a takeover happened. An infamous pharmaceutical CEO purchased a majority of KaloBios shares and the price quintupled between the close on the 18th and the next day's opening price.
His name is Joe Campbell, and he claims he went to bed Wednesday evening with some $37,000 in his trading account at E-Trade. One notable development on the pharma front later, and Campbell woke up to a debt of $106,445.56. Now, he may end up liquidating his 401(k). And his wife’s.
That’s where you come in. At least where Campbell desperately hopes you come in. Of course, sympathy in the trading community over such gaffes is typically in short supply.
His is a cautionary tale of getting caught on the wrong side of one of the riskier bets on Wall Street. When you’re long, the worst you can do is lose is everything. But when you’re short, everything and a lot more is at stake. He should have known better, no doubt, but you have to feel for this poor guy.
This is what a true trading nightmare looks like:
KaloBios KBIO, +30.79% stock had exploded, running up about 800% at one point in late trading after Turing Pharmaceuticals CEO Martin Shkreli (yes, THAT Shkreli) gained control of a majority of the shares. KaloBios had announced last week that it was winding down operations because it was running out of cash while developing two potential cancer drugs.
Here is the chart that was staring JOE in the face after he got short. You can see the chart below. He got short [or betted against KBIO ] right before the price skyrocketed. OUCH!
Now the short seller owes E-Trade $106,446, MW reports. Or, slightly less now, as he set up a GoFundMe account to solicit donations to cover his mistake. Generous donors gave him about $5,000.
There's a good lesson here: Don't short stocks. Unless you can really afford to lose.
The very idea of short selling makes my stomach hurt. You tell me. Short selling: Good idea or not?
This is what apparently happened, as Joe explains in his GoFundMe plea. This is what he said, when he posted.
“I was holding KBIO short overnight for what I thought was a nice $2.00 fade coming,” he wrote. “At the close of the bell I saw the quote montage clear out and figured today there was no action after hours in the stock. So I went to my office for a long meeting. I got out of the meeting and saw a message from one of my buddy’s, he asked if I was ok since I was short KBIO.”
So now Campbell is coming to the community for some help. Good luck.
his latest comment was : “If you don’t want to donate I understand, at least read my story of what happened today and protect yourself from the same happening to you!” he wrote. “This is a terrible lesson for me but if this helps just one person than I’m happy I wrote this.”
In all my years, you see horror stories like this all the time. It happens, and you will never be able to tell who is good, and who is going to be bad in this game. All I can say is that technology makes it very easy to put your money anywhere, but by god, you better have a good plan. You see not everything out there is solid gold, while people have this rendition in their head that they will click a few buttons and make a shit load of money, it simply just does not work like that.
With careful planning one can do really well. And with the rapid development in the social trading, and other technologies, one could make a mint in the next 5 years if you knew what you were doing. You just have to sit down and think in your own mind, what are the risks I am taking and is this all worth it. But basically when all is said and done you must be able to show assertiveness and awareness by coming up with a short term plan and longer term plan. In all my years, people that set goals, and have a plan and then work that plan each and every day. These are the people that usually succeed beyond their wildest expectations.
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