Sunday, November 26, 2006

A novice trader's lament...

I put a couple of stocks in my watchlist: Delta, American, and Northwest.

Northwest and Delta are going through bankruptcy.

My thought was, I would buy 10,000 shares of Delta and let it ride. Then someone by the name of Jeff M. was kind enough to point out to me what happened with United Airline's stock when they went through bankruptcy. Basically, their stock was cancelled and reissued just before emerging from bankruptcy. It rendered the previous stock worthless. So, I called Delta and sure enough Delta has the same plan-I didn't do my due diligence. Luckily, some random person named Jeff M. did it for me and probably saved me about $6,500. I still made $6000 on the trade--so, it was still a good trade.

Unfortunately, the thing I didn't do was call up Northwest's Investor Relations and see if they were planning the same "cancelation and reissue." Northwests stock was still trading at $.55 when all this Delta stuff was going on. If I was just a tad more on the ball, I could have taken that $6000 from the Delta trade and bought 10,000 Northwest shares for $5,500. Today, in one month's time, that investment would be worth $40,000-the stock closed Friday at $3.98 a share.

This is a tough lesson. It's not that I'm unhappy about not making more money on the Delta trade, or that Northwest's stock has taken off like a rocket. I'm unhappy that I didn't do my homework by making a simple phone call. I dismissed Northwest without really looking into it.

All I can do is make a note of this and be more inclined to investigate companies more thoroughly in the future.

Also, something that I think was throwing me off was reading the Headlines--not always the best thing to do. Delta always has great news coming out. Northwest's news is sort of lack-luster--something else to note.

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