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By SCOTT LONG, Times Staff Writer
Published January 31, 2008
My White House of Cards is crumbling before my eyes.
I thought I had stealthily snapped up a bargain early on in my investing in the Iowa Electronic Markets, a presidential futures market that works like a stock market. Rudy Giuliani banked on skipping the early contests and emerging strongly in a crowded field coming out of Florida. I banked he was right, to the tune of 564 shares.
The headline in this newspaper on Wednesday: "FLA. PROPELS McCAIN." Oh, and this one, too: "Giuliani expected to drop out."
So this is what it feels like to buy into a company's hype, only to sell in a fury when you learn that hype was hollow. At least I found a willing buyer for my entire Giuliani stake - at a juicy two-tenths of a cent per share.
And, somewhat oddly considering the Giuliani debacle, the value of my portfolio actually jumped 6.7 percent. That's thanks to a healthy enough stake in John McCain.
So what does an investor do when the flames of failure lap at his ankles? He retreats to what he knows best. At least that's what this investor is doing.
I'm a gambler. From the beginning, the gambling angle in the Iowa Electronic Markets was this:
- Split your stake into bundles of all Democratic candidates and bundles of all Republican candidates. That means for every dollar you spend, you get one share in all of the party's candidates.
- Then, start selling off shares in the losing candidates when it becomes obvious or better yet, before their 15 minutes of CNN fame are over.
- The money you cull from those sales becomes your profit, and you'll be left with 250 shares of each nominee, good for $500 - your starting stake - upon nomination.
But this wasn't about gambling for me. It was about learning how the markets work. So I took my lumps. And for that, I'm richer in experience, even if I'm poorer on paper.
After my first column, I started exchanging e-mails with a very nice fellow named Gary Fethke. He's the former president of the University of Iowa, which hosts the IEM. He wished me well in my endeavor, sharing this advice: "I think it would be nice if you could think about the IEM as a 'presidential stock market,' rather than using betting or gambling analogies."
He went on to tell me the spread between the bid prices and the ask prices is important. He also said most of the money made on this market is by a small number of clever traders.
I smiled slyly as I thought about what he said. Working the "middle" in sports betting is known as "scalping." In investing, sounds like it's known as "clever."
So back to gambling I go. My leaner portfolio now sports shares in just three candidates: McCain, Hillary Clinton and Barack Obama. Barring an upset from Mitt Romney, I'll likely recoup most of my losses as I sell off shares in the losing Democratic candidate. With some clever trading down the stretch, I might even squeak out a small profit.
And rue the day I raved about Rudy.
Scott Long can be reached at firstname.lastname@example.org or (727) 893-8556.
Day 20: $408.75
Week-to-week: Down 5.7 percent
Year-to-date: Down 18.3 percent
Times staff writer Scott Long has invested $500 in the Iowa Electronic Markets (iemweb.biz.uiowa.edu/), hoping to learn about the stock market, become a more informed voter and, of course, make money.
Current portfolio: Barack Obama (356), John McCain (235), Hillary Clinton (175). No cash on hand.
[Last modified January 30, 2008, 23:02:41]