The Tycoon Report

How to Lose EVERYTHING on ONE Trade (Part I)

Tuesday, May 15, 2007 | Dylan Jovine

(Note from the Editor: It's amazing how many times we can go back to the well with this 3-part series.  Although we've republished this article three times in the past three years, we always get requests to publish it again.  After holding off for the past three months, I figured this was as good a time as any because Dylan just left for a two-week trip to Italy for his honeymoon.)

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Note to readers:  In this series I share events that actually took place in my life that had a huge impact on how I invest.  The names of people/places/things have been changed for obvious reasons.

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I COULDN'T HAVE BEEN MORE THAN 22 YEARS OLD AT THE TIME.

The year was 1994.
   
I had been working on Wall Street for all of eighteen months.
   
My official job title was "Stockbroker."
   
That was before stockbrokers began calling themselves "Financial Consultants" and started selling everything from life insurance to mortgages.
   
That was back when a stockbroker was still a stockbroker, and the job description was the same as it was back in the 1920s:
   
To convince the wealthiest people in the country to buy stocks you and/or your firm recommended.
   
But to convince an investor to buy a stock, you first have to convince them that you have good research.
   
And since research was the one area of the business I found most fascinating, I had spent a lot of time trying to learn the craft.
   
That's why I had agreed, when I was still in the firm's broker training program, to come in an hour early and stay an hour late every day and help the firm's Chief Technical Stock Analyst, Dr. Bob Johnston, update his charts by hand.
   
I had heard about Dr. Johnston from my manager, an older broker named Jay Livingstone.
   
Doc, as he liked to be called, was a retired physician who had built a huge multi-location practice in California and had sold it for millions.
   
Instead of retiring, he decided to devote his full attention to his life-long hobby and passion, investing.
   
He had started at the firm originally as a client.
   
It wasn't long before his reputation as a savvy investor was well-known within the firm.
   
It was said that a week before the '87 crash, he had called Jay Livingstone, who was also his broker at the firm, and not only sold all of his positions ...
   
But the next day he called Jay and decided to SHORT the very same stocks he had owned the day before.
   
It was said that he made over ten million dollars that month.
   
It wasn't long before all the senior partners were taking HIS ADVICE.
   
Shortly thereafter, the owner of the firm, Bob Billings, cannily offered him a job as the firm's Chief Technical Analyst.
   
He readily accepted.
   
Working alongside him during the training program had its obvious benefits.
   
Obviously he was – according to everybody "in the know" – a super investor.
   
But he was also a patient teacher.
   
Doc didn't say much, but he turned me on to some great books, and when he did talk he was always patient.
   
He also had some great connections.
   
The day BEFORE President Clinton gave his first State of the Union speech, Doc had an early draft faxed to him.
   
He wanted to see if there was any reference to Hillary's attempt to take over healthcare in it.
   
I was stunned as I handed the fax to him.
   
He gave me a knowing pat on the back and smiled as if to say, "You see, son, Wall Street is the true center of power in the world."
   
He was even kind enough to let me make a copy and bring it home to show my family.
   
Not wanting to seem overeager, I declined.
   
For an impressionable 22-year-old from Queens, working with Doc was a big deal indeed.
   
That's why I readily agreed to stay with him even after I finished the training program and started on my own.
   
Sure, my regular job was hard, and the hours were long, but silently working with Doc in his huge mahogany and brass executive office was more like a "peaceful" retreat than actual work.
   
Of course, it didn't hurt that I had access to his ideas before the morning sales meetings.
   
However, the true pleasure I got on a daily basis was the feeling that we were both prospecting for gold, quietly searching through hundreds of stock charts in a race against time to discover the perfect investment, competing against thousands of analysts around the world who were doing the exact same thing.
   
But the best part about working with Doc – the part I enjoyed the most – was when he found a stock that he truly loved.
   
Normally, when Doc liked a stock he would smile at me and say quietly, "That's a good one," and put it to the side for later review.
   
But when he found a stock he really loved, it was like the temperature in the room changed.
   
We would be standing in front of the big, mahogany conference table in his office with dozens of charts laid out in perfect order.
   
Suddenly Doc would stop what he was doing and put his glasses down.
   
Then he would take a meaningful puff from his cigar (which he smoked at all hours) and slowly turn around to look right at me and smile.
   
It was that smile that said, "This one is going to be a huge winner," that I looked for on a daily basis ... that we both looked for on a daily basis.
   
And that's why, on one Monday morning in November, I decided to invest everything I had – right after I was just married – into one of Doc's favorite stocks.
   
What happened next changed my life.
   
(Part II Continues Next Week) ... 




Dylan Jovine
Chief Investment Officer
The Tycoon Report