How To Make An Easy Million Dollars

Want to know how to make an easy million dollars? Start with 6 million and than be foolish…. That will take your 6 to 1.

So it’s March 2001, like 4 weeks before the largest startup bubble in history.  We’ve sold the company, sweet win. It’s a cash purchase with a Fortune 500 and I have a choice to make: either excersize my options and take my winnings off the table or I can let them ride converted into 3Com stock.  Take the cash and I’m taxed at ordinary income,. Plus the buyer is 3Com and 3Com’s about to spin out Palm Stock so I hold the options in trade for 3Com stock in order to go for cap gains and a Palm spinout stock bump.

Four weeks later the market crashes but 3Com stock is up due to the impending Palm spinout. It spins, the value of my stock doubles. I sell $54K of stock to buy a new Lexus. Palm stock slpits into two companies, Palm (the hardware company) and Palmsoft (the software company). Stock goes up another 50%.

By the end of December my Alex Brown broker tells me that the combination of the cratering market and my high concentration in 3Com, Palm and Palmsoft stock makes me the proud owner of the #1 performing account at Alex Brown for 2001.

3 months later, 3Com, Palm and PalmSoft crash, my portfolio takes a bath and I’m a millionaire……. barely.

Lessons Learned?

  1. Had I taken $280K out of the market and bought a Ferrari, the difference in stock adjusted cost between the $54K Lexus and the Ferrari would have cost me $30K more than the Lexus. In other words, when the market crashed I would have had $30K less stock and a Ferrari.
  2. Don’t make stock sell decisions around taxes decisions.
  3. Losing $5 Million is a setback. It ain’t the end of the world. You can get over it.