Beware Of The Obvious Trade

Back in the 90’s you didn’t need to work hard to make a lot of money.  All you had to do was buy a cool URL ahead of the crowd and then just wait for some conglomerate who was caught up in the dot.com mania to come along and buy it, making you a multi-millionaire.

It happened time and time again.  Drugs.com went for $830,000.  Men.com for $1.3 million. Casino.com for $5.5 million.  And Business.com for a whopping $7.5 million.

I was a little late to the craze, but I’m pretty smart, and I figured I could find grab a URL nobody had thought about yet and then sit back and wait for my payday.  I went through a number of different ideas, but they all seemed to be taken.  Then for some reason, the idea of Star Trek came into my head.

Personally I’m not a fan of Star Trek, but I knew there were a lot of dorks out there that loved it and maybe that would make a URL related to the show valuable.  So I started checking the names I knew.

“Enterprise.com”…nope.  “StarTrek.com”….of course not.  I began to go through the crew members names.  “MrSpock.com”…..nah.  “MrSulu.com”……no.  “MrChekov.com”……taken.  “HanSolo.com”……damn, they were all taken.  Then I hit pay dirt.

I could not believe it.  A chill went down my spine.  How could this name have been missed?

I seriously thought that in the time between when I discovered it and when I completed my transaction somebody would swoop in and grab it.  My credit card even slipped out of my hands as I was trying to buy it because they were so sweaty, but I finally locked it down.  It was mine.

“CaptianKirk.com.”      Woot!

I was so excited that I emailed my best friend, who was in fact a Star Trek geek, to tell him of my coup.  His return reply a few minutes later brought me crashing down to Earth.  Perhaps I should have spell checked my URL before I bought it, he not so gently suggested.

But spell checking was unnecessary.  The fact that a URL with the name of Star Trek’s main character was NOT taken, while URL’s of lesser characters were, should have been a red flag that this score was not what I thought it was.

This same phenomenon has happened to me in the past with trading.  I have bought a stock because everyone “knew” a buyout was coming, only to see it tank.  I have bought an option that I thought was phenomenally mis-priced, only to realize after the trade executed that it was the wrong expiration.  It has taught me that if a trade is too obvious, there is probably something I am missing.

We recently saw a perfect example of this with the $FB IPO.

When $LNKD went public, nobody from the retail side (at least relatively speaking) was interested in it.  It was viewed with some amount of scorn and scepticism, often being talked about like a “second tier” social company.

I remember a number of non-traders in my office watching the first day’s action, who were utterly shocked when the price ran as high as $122 intra-day after going out the gate at $83.00.

They kept watching it saying, “I would have sold some here, up 10 points.  I would have sold some more here up 20 points.  I would have sold the rest of it here up 30 points.  Man, I wish I had bought this at the open.”

Fast forward to the $FB IPO, and they were all chomping at the bit to buy the first tick.  To them the trade was so “obvious.”  If $LNKD, which was the red-haired stepchild of social, rocketed up on its IPO, it just went without saying that the gold standard of social would do even better.  It was also “obvious” to half of America that they could make a fortune flipping this IPO.

Of course we all know how this story has played out since.  $FB may in fact come back and surpass it’s IPO price one day, but a lot of these neophyte traders have become investors on this “obvious” play.

Eventually, with time and experience, you will quickly be able to identify why a trade is too obvious, and discard it.  But if you are not at that level yet, a good rule is to re-check your trade, then re-check it again.  And if it still seems too obvious, ask one of your fellow trading friends to check you, just to make sure you are not missing something.

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7 Responses

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      • “www.sit.com” would have been a good one.

        If you are serious about the proofreader, email me…I read your blog anyway.

        “Scorn and scepticism” really roll off the tongue and “scepticism,” though rare enough for my iPad’s spellcheck “to catch,” is an acceptable alternative to “skepticism,” which is not to be confused with “septicism.”

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  4. Sir,

    I know the tech IPOs are crazy right. A lot of 20 and 30 somethings in SF have become millionaires but it’s nothing when you consider standard of living is so high and most families with 2+ kids and home are already multi-millionaires.

    The next issue is you make a good point on how investors shouldn’t be brainwashed by others opinions and articles. This is just a phase for many new investors and retail participants. I call it stock market growing pains. You should use you own head and make your own decisions. Brokers tell you have they an offer and get you excited to work up an offer. I can tell you people get emotional when it comes to making any sort of investment decision whether it real estate or stocks. It comes to down to having enough research to back up your offer at the end of the day.

    The next issue is domains. Speculating on domains is for the weak and small minded. Get rich schemes never work. Same sort of thing for social networking stocks today. I’ve always learned that real wealth doesn’t come from capital gains. Real comes from actually working a 9 to 5. Real wealth comes from interest income accumulated in your bank account in the long term. My brother and sister in law in SF are the perfect example. They don’t have tens of millions of dollars, but they are on there way. I tell my kids to work hard, get a good paying job, save, invest and spend wisely and you’ll be on the path to wealth. It is simple. Great article.

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