As a chartered accountant come blogger, I like to think I know a bit about business.
Sometimes I am right, and sometimes I am wrong.
However, I have successfully traded a share portfolio over the last few years bringing a modest return of 43%. At least it’s much better than you would get in a bank!
Like Kevin Hart’s new stand up tour, I am currently moving money around and am resigned to trading on a live simulator with $10,000 of fake money. Especially as we are looking to move house.
This hasn’t stopped me trading and researching.
This year alone, my simulated portfolio has brought in around 37% of gains overall. The main trades that contributed to that was Snapchat.
If you don’t know what Snapchat is, you must be 40 years old, or have your head stuck in the ground. Evan Spiegel and Bobby Murphy started Snapchat which is a cross between a social media photo and video platform, integrated with an instant messaging service. You can send photos and videos with funny filters like the dog, that integrate with your smartphone camera. You can caption and easily edit your photos and videos on the app and send them to friends and followers. The main point, is that they are deleted within a few seconds, never to be seen again.
You have the option to send it to specific people, or to all of your followers. You also have the option of Stories, which was a game changer. This allows you to take photos and videos on the app throughout your day, and it will piece them together like a story. Essentially vlogging from your smartphone. Anyone who follows you can see your story and you can watch theirs.
This tech even got the attention of Mark Zuckerberg over at Facebook, who recently offered the shareholders $1billion. They turned it down. This got the whole investment world to notice, including me.
What they didn’t bank on, is how much that would annoy Mark, and how ruthless he is to dominate the social media and advertising space. So within about 3 weeks of them turning the offer down, Instagram, which is owned by Facebook, launched their version of stories. It was integrated better and works well. Essentially overnight making Snap the new Twitter or worse, Vine. Especially as they didn’t have a case in a court of law against Facebook, after not protecting the intellectual property.
This is when the owners really got smart. They knew this would be the death of Snap, so they pushed on for an IPO (Initial Public Offering) as quickly as possible. Straight away, I had my trade plan.
To a rational investor or trader, you can see what was going to happen. They are trying to cash out for as much as possible, which reduces their shareholding and risk. They become billionaires overnight, with a lot of employees and early investors becoming millionaires. The losers in this scenario are people’s pension funds run by hedge fund managers, domestic traders and Joe public. There was a lot of excitement over the release as you would expect, with the underwriters guaranteeing $13 a share.
Not bad for a company that hasn’t to date made a profit.
Now this isn’t uncommon, if we remember Netflix and Facebook, they both listed before ever making a profit. However, they have reputable business models that will generate cash going forward. Not only that, but they are run by CEO’s that want world dominance and respect rather than money. This has pushed them to constantly develop and bring out new products.
So ding ding went the bell and that was that. My prediction was to try and buy on the up in early trading, and hold for around 24-48 hours before the share price settles and finds its feet. I managed to get $5000 worth at around $17.50 per share.
Within 24 hours I had sold out at $24 per share. Giving me a profit of $1,852. Not bad for a days work.
However I wasn’t finished.
Given all of the company accounts I have gone over, all the research I completed, I was adamant that $24 per share drastically overvalued the company which quite frankly is worthless.
The weeks leading up to the IPO, Snapchat, because of Instagram, experienced its first ever month of declining active users. That’s right, at a time when users should be growing exponentially, they started to taper off at around 155 million per day worldwide. This to me is the biggest indicator of consumer confidence in a product. The opposite of this is true in Coca Cola and why Warren is a genius.
So naturally I placed my short. This is a complex process that allows investors and traders to make money and keep the economy going in a declining market. It means I am borrowing some shares from a broker or the exchange, to sell them at market rate, and buy them back later at a lower price. Then your profit is the difference between the amount you sold them for and what you bought them for to give them back to your broker and clear the loan.
Stick with me.
So I borrowed 104 shares at $24 and immediately sold them giving me $2500 in cash. Now this means instantly I owe my broker 104 shares in Snapchat, no matter how I get them to him or at what price, eventually I have to give the shares back.
As predicted the stock increased slightly to $27 per share at its peak, but I held my short for 3 months. I bought back the 104 shares at $14.97 on July 19th. So this only cost me $1,556 meaning I give the shares back to the broker and I am left with $943 in profit. Less fees and taxes, it’s still not a bad return.
I made 55.8% in just over 4 months. Not only that, but my prediction was almost exactly right. This doesn’t happen often, but when it does, it feels amazing.
Snapchat (and I) have essentially scammed people out of their hard earned money. Now this is just business and part of being a trader. Someone has to win and someone else has to lose. The real fault is in the system. Evan knew Snapchat is worth nothing, but he sold anyway. So would I if someone was offering me billions for my company. He isn’t to blame. I made some money because I worked hard to put myself ahead of the game on this one. On others I will lose and get it wrong, but I am able to be profitable in the long run. So far that has been the case. But again, I’m not to blame.
It’s the fact that the process is available for us both to be able to take advantage of it.
On the 3rd of February 2017 I made a Facebook post to my friends and family from my personal account, warning them of the pitfalls of Snapchat, and how I would be trading it. My friends who are traders agreed and luckily, no one bought into Snapchat for the long game.
My prediction going forward is that the stock will level at around $15-20 per share, due to high volatility and volume trading, but will never push on and achieve what people thought it would. Eventually going bust like Vine, MySpace and Bebo just to name a few.
Let’s see if I am right or if Evan and co. come up with a drastic game changer in the meantime. (I highly doubt it).
I hope you found this useful, and if you would like me to blog more about shares and trading, just let me know!