The Game

Hello everybody, welcome to Big Al's Casino! Play along, have some fun, listen to some ideas, share your own, it's all good. Thanks for being here!

[Note: One of my readers had expressed an interest in knowing what I DO invest in. As you may recall, in the 'Big Al's Casino' post, I mention a lot of stocks, but only own one of those stocks. So here goes, with an update on my own personal winners].

I have two schools of thought on investing. One, turn most of my money over to solidly performing mutual funds for safety and to use their expertise, and two, keep a portion for myself that I can invest and learn and quite frankly, compete. Can I beat this professional investors, even though I know the cards are stacked against me? The good news is yes. The portion I keep for myself has risen to become a fairly sizable sum, and I will continue to manage it. I call this money 'play money'.

A few years back, I developed a game in my 'play money' account. I start the year with a basic sum, say $30k, and end the year with $30k. It's just 'play money', so whatever proceeds I get, I get to keep for play purposes. (Please note this is not a true number - I am leery of TOO much sharing on the internet). By good fortune in 2006 I was able to extract 25% over the course of the year. I consider 25% gains pretty good. I wish I had made anywhere near that money in my professionally managed accounts! And I was just playing! The proceeds in this case helped me buy another car so my daughter could have one of the older family cars; pay for a ski trip; and fund my Roth IRA account.

I was able to get this 25% return by virtue of a few timely picks (and sells) - Auxilium Pharmaceuticals, Google, Redhat, and McDonalds. The McDonalds story is completely indicative of how I invest. I started watching McDonalds because of a comment made by my nephew Jeff. Jeff was visiting my son Roy and we were all riding home in the car from some excursion. I was talking about investing, and Jeff piped up that if "he had any money, he would buy McDonalds, there is one on every corner". I agreed that's a great point. I went home, looked it up, saw no reason to buy it at the time, but kept it in the back of mind. Years later I noticed a small annoucement in the Wall Street Journal that "Newman's Own" salad dressing was going to be served in McDonalds. That's cool, what a great idea, I thought. That is really thinking upscale. I would eat a McDonald's salad with Newman's Own Caesar dressing on it. I started to notice some other strategic developments at MCD: New guy running the company, slower expansion, tiering their offerings, more emphasis on existing stores, real estate market booming, it went on and on.

I looked up the stock - it was at a 5 year low. OMG! I bought 200 shares immediately at $14 and wish I had bought 2000. This year I sold those shares at $28 and $32. I am kicking myself slightly, because MCD just keeps getting better, and is now up in the mid 40s. Overall, I think the folks that run McDonalds are smart, innovative, and great business people. I am inclined to buy it again should the price come down a bit.

Which brings me to the reason I sold it. I sold it mainly because over the years I was making the classic novice investment mistake. That is, only selling my losers and keeping my winners. After a while, your winners go down, and then you sell them (stupid stupid stupid), and you never ever bank any money. Once in a while you have to sell your winners, that's where your true profit lies. Donald Trump said it best. He was once asked if was he sorry he sold a stock that later surged. He replied, "I made a profit, I'm happy". Okay, fair enough. I also made a profit. I AM happy! Woo - hoo!

Same with Google. This is an awesome, smart, innovately run company. I like that they don't split their shares. I like that they purchase companies to expand their reach, like Utube. I love Google Earth. I like that they dominate the search engine market. I like that TV ads for Pontiac direct you to the Google website. I think they are a little extravagant right now (due to their phenomenal wealth), and due for a correction. But the main reason I sold part of my Google holdings is that I was looking to bank some profit, and I want to invest in companies that might double my money. So I sold it, and bought something else. I doubt Google is going from $480 - $960 a share this year.

Well time to go. Thanks for looking in, listening to my schpeil, and hopefully extending your reach into the investment world. I feel good, I hope you do to!

Big Al