Million Dollar Portfolio

A few months ago I opened an account in the World Stock Exchange which is a virtual exchange that exists in the “game” Second Life. I use the word game in quotes because it’s not really a game. Second Life is more of a virtual world. If you have ever read Neil Stephenson’s Snow Crash or Neuromancer by William Gibson you know what I am talking about or at least have an idea.

In Second Life you can build just about anything you can imagine. You have an entire world, such as it is at your fingertips.

So along comes the World Stock Echange, formerly the World Currency Exchange to entice investors into putting their hard earned lindens to work in stocks of companies that exist in Second Life. I began my investing modestly, with a few thousand dollars that I parlayed into a few thousand more in a short amount of time. At this point I had about $L50,000 lindens which is approxamately $181.00 USD. I decided to keep this investment routine going using the same principles I use when investing in real markets.

I bought as many shares of a particular company I found undervalued and i alone drove the price up, probably far beyond what most people expected. Then a couple weeks ago I invested about $950 US into this same stock, once again driving the price up beyond the levels most expected. Each time this happened, a flurry of investors who had small stakes in this stock flooded the market with their shares. What’s interesting about how they did it, is that each one of these shareholders would list their stock a penny or a few pennies lower than the last guy…driving the stock price down until it was at levels where I had bought up shares to begin with.

So what’s my point in all this?

The point is, no matter what kind of market you are investing in, you have to set goals for where you expect to buy and sell. If you buy a million dollar house and expect it’s going to go up in value just because you read that houses always appreciate…then you are being ignorant. There is no guarantee that anything, whether a stock, a house or some other object is going to appreciate in value. You have to have more foresight than that and when it comes to stocks, you have to do a lot of homework and research about the company you are investing in.

In this case, I own 16.5% of the total shares of this stock. The benefit to this is I know what the company is building and I have an idea about what is going to happen in the future with the economy and business in Second Life. Already there is a push to remove gambling related advertising from listings in Second Life’s online classified system. It’s not long after something like this that all of gambling would be banned or at least removed entirely. This is the main reason I picked the stock that I did. I am not mentioning it by name because I don’t want to influence the artificial inflation of the price, but if you want to know what it is and you are interested in buying the stock as an investment, simply email me or comment on this post and I will respond to you in person. Then if you make money on the stock you can buy me a beer!

All that being said, there is some good advice I have gotten over the years from several big investors in the real world. The first is that a stock must be profitable before you buy it. What that means is you should know at what price you are going to sell it, so that you aren’t just “hoping” it goes up. You can estimate things like this by examining the sector that stock is in and what the company is doing to increase shareholder value.

The second thing is you want to buy on weakness and sell on strength. Buy the stock on the way down, not on the way up. As a stock price gets lower, you get a better price and can average down your cost so that when it goes back up, you make more money on the way up. Never invest all at once, pick a position and trade around that price.

I’m waiting for the people that don’t understand the idea of supply and demand in the World Stock Exchange to get out. You see, without the ability to place option calls and puts and with no short selling, the price of any stock on the WSE is going to be a factor of supply and demand. If you remove the supply and investors see the price going up, they see an opportunity to make money and then try to buy the stock. Owners of shares in that company also see the price and try to sell their stock before the price goes down again. So the real winners in this case are the shareholders that have large stakes in the company because they can control the market demand. By withholding my shares from the market I remove 16.5% of the shares from being traded, thus reducing the “float” or available shares. This allows the investors that have very few shares to move the price and then I can decide when I like the prices to sell to. This is called “hitting the bid”.

Hitting the bid means to sell your shares at the highest bid price. When a stock’s price is rising, it’s the bidders (or buyers wanting shares) that drive the price up. Conversely, the Ask price is what sellers are willing to sell their shares at. Sellers dumping their shares on the market using limit orders drive the stock price down when they list it below the last ask price. Again, this is a factor of not having options and short selling in the market. Prices move solely on supply and demand.

So now here I am, waiting for the price to move up. Sure I could go in and buy another $900.00 worth of stock and probably corner the market, or at least own a major portion of the shares of this company but I think I’ll wait and see what happens. I think in time these investors will learn a thing or two and realize they have been trading the wrong way this whole time. That’s when I’ll make my move and add to my Million Dollar Portfolio.

By the way, currently my portfolio in the WSE is worth almost $L400,000.00 or roughly $1400.00 US. Not bad for a virtual market, not bad at all.

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