Investing disaster taught valuable lesson

LARRY MACDONALD | November 1, 2008

MARK GARRAFA

AGE: 31

OCCUPATION: Heating, ventilating, air conditioning (HVAC) technician residing in Guelph, Ont.

PORTFOLIO: Cash, Apple Inc. and ProShares UltraShort QQQ exchange-traded fund. Mr. Garrafa is an active trader and his positions can change quickly.

THE INVESTOR

Mr. Garrafa began investing during the boom of early 2000 after hearing from people how much money they were making in the market. His first investment was a volatile mining stock. One day shortly after his purchase, it lost 90 per cent of its value "in a span of five minutes."

That's when he "decided to buy books, study the market and figure out how it really worked - or at least try to figure it out." His self-imposed apprenticeship lasted seven years. A key turning point came when he joined a social investing website, updown.com.It allowed him to practise trading with a virtual portfolio in a realistic fashion and offered cash rewards for performance. Within three months, he was surprised to discover that he was the top trader out of 10,000 people on the site. He didn't stay on top but the experience proved he was ready to trade with real money again.

HOW HE INVESTS

Mr. Garrafa is contrarian. "I love to buy stocks that have taken a beating because of negative news but I believe will turn around. I also often short stocks that have skyrocketed on news that I don't believe is so positive."

He researches everything about a company, "from the amount of shares the insiders own to how many shares are sold short." He has even called stores to find out how well a particular product is selling.

"Another strategy I use is to think fast on what other company or sector would benefit from the good news from another company or sector. If you can beat the street at this, you can make some really good gains."

BEST MOVE

"One of my best moves was buying Apple shares, months before the release of the iPhone. There was a buzz on the street and I knew the phone would be a hit. Sure enough, the stock moved well."

WORST MOVE

His first investment, the mining stock that lost 90 per cent in a day, was the worst move he ever made. "However, it also turned out to be the best mistake I ever made, because it forced me to learn more about the markets."

ADVICE

"Study, study, study. Learn as much as you can. Not just about the market but also the entire psychological aspect of playing the market. You will never figure out exactly how the market works, but the more knowledge you have, the better off you will be."

But his most important rule is to "play" the market. "You cannot take it too seriously because then you get too emotionally involved and that is when you make poor judgments," he suggests.