It is interesting that you are talking about Enron and you were not able to figure out how they made their money.
In fact, during my MBA, I did my legal issues, Finance and Accounting papers on Enron.
I found out three majors things:
1 - Most of the Executive staff was Harvard MBA.
2 - They had hundreds of companies, subsidiaries, sub-companies, departments. One company was selling to the other one. One subsidiary was borrowing money from another one. At then end, it was almost impossible to say what was their sales or their debt ratio.
3 - The auditors (Arthur Andersen LLP) were up to their ears in conflict of interests. They had contracts to audit the financials and they had contracts as consultants totally out of the auditing or accounting business.
As you know now, Enron was a crooked company and Arthur Endersen LLP no longer exists.
I know, I won't make you feel better, but I did not sank with the tech bubble.
When I read that the whole valuation of Nortel Telecom (Canadian Telecom company on Toronto and NYSE) via the P/E was like all the industrial stocks in Canada, I figured out there were somethign wrong. But when BCE Enterprises split the stock out of their main stock, I really KNEW something was wrong. So I got away of all my tech stocks. Sadly, I kept my other stocks that sank 30%. It is after this event that I really decided to hedge and never be too greedy.
One thing I learned from a friend that has an average of 20% returns over 15 years, and perhaps it will help some readers here:
He buys only 1 or 2 stocks in his portfolio, but he hedges by selling calls/puts (depending what his quantitative model tells him-Since one year he is on the call side by the way.) By doing so, he does not care about the price of the stock, but by the money he collects from the selling of the contracts. As long as the stock moves up or down, he makes money.
Frankly, I begin to think to do like him. He spends 10% of the time I spend to analyse and he has a better return than me on the long-term.
P.S.: We are on PECS board, let's say something about PECS, because someone will bark at us: PECS is doing well since a couple of days,isn't? :)
Amen to all your comments, kestak2000, amen.
Why didn't I write puts and calls?
1. Top reason was I thought I knew better than the market. Surely this thing would turn around...tomorrow. And every day there was a new tomorrow to hope for.
2. I have a high risk tolerance. I shouldn't, because I'm not smart enough to, but I do.
3. I was in so deep, I didn't even want to hedge, although clearly that would have been a good strategy.
4. Everyone else's tech stocks were tanking, too. Mob mentality took over.
The truly ridiculous thing about the tech bubble, for me, was that I predicted it. I said to a good friend in late '98, early '99, that there was probably some measure of GNP or GDP, which, if you looked historically at that and how it compared to the market, would tell you that the market was outrageously overpriced. Then I went and bought KANA, and sank with everyone else.
Ouch. You have better nerves than me. Why didn't you wrote 30 put contracts at 15$ and bought 30 (or more) call contracts at 15$.
the money collected for the uts would have financed the calls and it would have been a lot less risky.
If the stock goes down a little bit, you would have lost almost anything (only 10% of the options in the money are exercised) and if the stock goes up, you would make more money than having the stock on the margin.
I am just curious, I am not critisizing (or whatewer you write that word in english) your investing strategy.
Disclaimer: Long on PECS with stock. No more call options in the bank. I exercised them lately. :)
For what it's worth, I am $50,000 margin balance for this stock today. That is no joke or misprint. $50,000.00.
It's how good I feel about this company.
Yes, I have a lot at 7-8 per share from two/three years ago, but I borrowed a little over 50K at the 10-15 per share level during this recent setback.
I have a lot of shares of this company and I really am confident.
I just wanted to let you know that I've been in RPM as well. It's a local company that has a solid management team. I've done great on companies that pay dividends with good management that were oversold on various fears. I figured I'd get the dividend paid until they recovered. I've since sold them all and am sitting on cash along with PECS and SEBL. I sold RPM, MO, LTD, and AEP at great gains. Things are turning for me good luck to you!