Learn from the little guy and outsmart Wall Street
Many people consider the stock market the plaything of ruthless hedge fund managers, cagey short sellers and slimy insider traders — an unfair, rigged game if you will.
So wouldn't you like to stick it to the Wall Street sharpies just once? That's why this tale is so delicious. Chris Camillo, 34, is your average, hard-working Dallas chap, with a wife and a mortgage.
He has a finance degree from SMU, but never liked that field and decided to work in marketing for a Dallas company. Camillo, like most amateur investors, doesn't have time to research a lot of stocks, but he does have time to research one or perhaps two stocks a year. And that's all.
Earlier this year for two months, he spent a few hours every night and weekends gathering information on Dendreon Corp. and its prostate cancer drug Provenge. The company is widely covered by Wall Street analysts, who basically had written off the company and the drug after the U.S. Food and Drug Administration asked Dendreon to repeat its final Phase III trial.
Camillo researched articles written by scientists, physicians and patients and became convinced that Provenge would ultimately be approved. The drug had actually passed the first Phase III trial, and all the FDA wanted to see before final approval was another Phase III trial with a larger test population.
"It became clear to me that Dendreon would be able to replicate the Phase III trial again," Camillo said. "But the Wall Street analysts were negative on the drug's prospects."
He came home after work on March 4, signed on to his online brokerage account and bought about 10,000 shares of Dendreon at S2.95 a share for about $30,000. He later purchased more shares, pushing his investment to $40,000.
And then the wait began. On April 13, Dendreon announced it would release results of the follow-up Phase III trial the next morning. Camillo said he "didn't sleep a wink that night"
The next morning after positive test results were released, Camillo checked his online account and discovered that his $40,000 had grown to $200,000 as the shares hit $20.
"I will never forget that morning," he said. "But you know what? The financial gain for me paled in comparison to the joy that I felt for the prostate cancer patients who were given some hope."
Buying individual stocks like this is risky business, and most investors are much better off buying mutual funds. However, average investors like Camillo, who are willing to spend a little time each week, can supercharge their portfolio with one or two smart picks each year. That's each year. I'm not talking about day trading.
"Only a small portion of my portfolio was exposed here, but it paid off," he said.
You don't need a finance degree to do this, but you should be observant and have confidence that you might know something that the analysts don't.
For example, Camillo and his younger brother attended a video gaming conference in 2007. He soon realized that all the "true gamers" at the conference were talking about the new Nintendo Wii, not Microsoft's Xbox or Sony's PlayStation.
Wall Street had not picked up on that; so Camillo bought Nintendo shares in the mid-$20 range and sold for $80. He calls this an "information edge," and most everyone eventually knows something about a company, product or trend that Wall Street doesn't.
Think about it for a moment Wall Street is dominated by generally older, white men. Naturally, they are slow to acknowledge youth or female-oriented trends. All of you guys out there need to listen to your wives, daughters and female friends. They may know something that Wall Street doesn't.
Don't you regret not listening to your wife or girlfriend when she tried to tell you about that new television network, HGTV, back in 1994? Camillo listened. Buying stock in the company that developed the home and garden improvement show, Scripps Networks, would have made you some money and, on top of that, made you a better person for listening.