Friday, December 11, 1998

Return of the Magi
(A Christmas Tale for a Volatile Market)

by David Berg-Seiter (

A couple hours after her husband, Jim, left for work, Melissa sat on the couch, still in her pajamas, waiting for eBay, Onsale, and to slide by on the CNBC tickers.

A few weeks ago, Melissa got a credit card solicitation with an introductory rate of 5.9%. Normally, she tossed such junk mail but this time she hesitated. It would be nice to have her own card. Christmas was around the corner. She could get Jim a present and keep it secret.

When her application was accepted, the issuer sent her a $2,500 check to cash for holiday spending. The check felt heavy. Five years of marriage, and still she had never been able to get him anything really nice. She'd never had money that wasn't already claimed by bills and she liked the possibility of it.

Dad had always talked about making your money work for you, investing over the long-haul, and taking advantage of dollar-cost-averaging. This could be her chance.

She checked books out of the library and kept them hidden under the bathroom sink, reading them only after Jim left for work. The Complete Idiot's Guide to Wall Street was too condescending. The Motley Fool Investment Guide was funny but neither index funds nor the Dow Dividend Strategy would make enough money in time for a truly great Christmas gift. The Electronic Day Trader had the most dazzling possibilities. Moving in and out of stocks would be exciting and if she was careful she could make a killing. This year she would get Jim something special.

She deposited her $2,500 in a margin account with an on-line broker and set up a portfolio to track some promising small-caps, keeping her eye on undervalued stocks poised for a jump. The bigger risk would deliver a bigger bang for her buck. Her heart beat just thinking about it. Waiting for her funds to clear, she saw a lot of hype over internet IPOs and e-commerce stocks. People who buy into such gravity-defying trends are suckers, she thought. Internet stocks are already over-valued. They're destined for a correction soon.

The week she was approved for trading, eBay, Onsale, and shot up in a rally spurred by AOL's buy-out of Netscape. The deal boosted confidence across the board and investors vied for their piece of the pie. Melissa knew it was too good to be true -- she was smarter than that. If she played contrarian she could win-out. It was a once-in-a-lifetime opportunity. Monday morning she placed three short-sell orders, shorting $1500 worth of shares for each ticker.

Tuesday she kissed Jim good-bye and cleaned the house whistling Fiddler On the Roof. At 4:30 she logged-on for a quote. The rally was still on, eBay gaining 16 1/4, Onsale up 12, and up almost 23. Day traders would begin profit-taking soon. The market couldn't sustain such price-inflation much longer.

Wednesday she left the TV on all day. Her stocks gained a few points but were slowing. Soon they'd dip and she'd buy-to-cover, make a tidy profit, and give Jim the surprise of his life.

Thursday she paced. Microsoft announced it had signed as the exclusive music retailer for MSN. Shares soared another 36 points. She wished the anti-trust hearings would hurry up. Wished BarnesAndNoble would flex its marketing muscle.

Friday she hunched at the computer watching her debit tick higher and higher. Must be the hedge fund managers as no sane person would continue to pour money into unprofitable businesses with such ugly debt/equity ratios. At the closing bell, in the hole over $6000, she quickly disconnected before Jim came home.

All weekend she was agitated and couldn't sleep. She was paying 6.5% on the borrowed shares, and that introductory rate turned to 17.9% for cash advances. If her short-sells didn't come down fast and hard, she would lose a lot more than $2500. But Monday would see high-volume profit-taking. She could maybe break even by Christmas. Otherwise, she'd ride it out.

On Monday she sat in her pajamas, gripping cold coffee, her glazed eyes reflecting CNBC blue. According to the commentators, the Asian markets were possibly nearing recovery, consumer confidence was high, and record numbers were avoiding lines by shopping on-line. E-commerce was popping; the rally was far from over. Her knees buckled as she stood to get some water. It'll eventually pan out, she told herself. The numbers don't lie.

The phone rang. Her broker said something about a minimum maintenance margin. Melissa said she'd hold on, take the gamble. But he said unless she sends additional cash, she'd have to cover.

$10,000 was gone. Not only was her Christmas gift ruined, her whole life was ruined. She feared Jim would divorce her. Behind his back she had blown money they didn't have. She'd be bankrupt, homeless. Her dreams of having a family shattered. She tried to think of ways out -- claim credit card fraud? Get another advance?

Then Jim came home. He put his briefcase by the door and walked toward the couch without even noticing she was still in her pajamas. "I should have told you about this sooner, honey, but I wanted it to be a surprise," he said. He clasped his
hands in front of him. "I bought some shares of a while back with my sales commission." He looked nervous, hoping his wife would not get angry. "I thought if I invested it, I could buy you something special. And, well, the stock has gone through the roof!" He threw a hand up to the ceiling. "So I told my guy to sell. We're going to have a very merry Christmas this year! Ten thousand dollars, Melissa! On $2500!"

Melissa saw Jim's happiness and reached for him. "Let's just save that money, dear. We might need it."

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