My Trading Strategy v1 (circa 1983)

I first developed a stock trading strategy as part of a Finance class at the University of Kentucky way back in the mid 80's. We were assigned an imaginary $10,000 portfolio for us to handle as we saw fit for the duration of the semester.

My strategy was quite simple. I would use the old bulky Value Line Survey at the school library and find income stocks that were about to go ex-dividend, buy them, collect the dividend and sell them for the basically the same price that I bought them for. My holding period was usually only a week and I was cleaning up with dividend income for most of the semester and thinking that I had a new career in front of me.

As the semester was drawing to a close, I was becoming more and more cocky with my strategy, putting my whole portfolio into whatever stock had the absolute highest yield. Then it happened....Pacific Gas & Electric. I dumped all my money into PG&E a few days before the dividend announcement...but the announcement I expected never came. Instead, they announced that construction on their nuclear plant was way over-budget and behind schedule. In fact, things were so bad that they were going to reduce or suspend their dividend (I forget which). As you might guess, the stock price plunged and I took a bath. As I recall, my portfolio that peaked at about $13-14K was now down to about $6,000. Alas, I turned in my report documenting my brilliant strategy and my humbling results.

If you remember the 80's, you'll recall that there were no sophisticated tools for tracking imaginary portfolios, so the trading was pretty much on the honor system and tracked in paper logs by the individual students. As you might expect from typical college students, many of my classmates took advantage retroactive trading and posted some pretty impressive gains over the course of the semester making my results even more disastrous.

But I'm pleased to say that it ended well. When the grades were handed out, my teacher singled my report out as the best because I had a strategy, even though it proved to be a flawed strategy.

And most importantly, I learned a valuable lesson, 4 months of well executed and successful trading can be wiped out by one poor decision. This made me the conservative investor that I am today.