Stock lessons 2009: buy high, sell low

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That’s exactly how I did with Shanda Games (Nasdaq:GAME) IPO today. Shanda is not new to me. I lost money on this one three years ago (see my old stock lesson here). I am not bitter about losing money either. Because after about 5 (6) years in US stock market, especially the roller coaster ride in the past year, I started trying to get emotion of making/losing money out of the stock game, I am not perfect yet but making progress.

One lesson I should learn is trust my own gut. The spin off of Shanda Games seems odd to me, because from business point of view, typically companies spin off non-core business, like Sohu/Changyou (Nasdaq:CYOU), EMC/VMWare (NYSE:VMW). The Shanda spin off looks like a secondary offering of Shanda Entertainment itself, because Online Game is its core business. Although Shanda (Nasdaq:SNDA) had committed itself to other ventures, including at one point use a sloan like “become China’s own Disney”. It has not make real inroad in other online business yet. Except made some money buying and selling Sina stocks couple years ago.

The other lesson, is both simple and relevant (to many people), that is my greed. When I read from news (source:Reuters) that Shanda increases its IPO size by 32.5%, I thought another Baidu free lunch is coming. What is Baidu free lunch? Well, in August 2005, when Baidu IPO debut, it priced at $27, started trading at around $70, and in the afternoon briefly touched $140. My friend who traded at dot com era smartly got in at opening, and got out in the afternoon at around $120. I was hoping I could repeat his success this time. Well, things did not turn out like I have hoped. It started strong (briefly touch $12.50 the IPO price before tanking). Bloomberg says the main reason is it priced too high and Shanda Entertainment sold too many stocks. I have did some simple calculation.

IPO price $12.5 * 83.5 m =1044 m
1.044 b /29% = 3.6 b market cap of Shanda Games (spin off)

IPO debut 09/25 it closed at $10.75 * 83.5 m = 897.6 m / 29% = 3095 m

SNDA closed at $50 and market cap is 3.34 b (Shanda Entertainment still has 71% of Shanda Games). It still has 71% stake in Shanda Games (3095 * 71% = 2198 m). The rest of Shanda business worth

$3.34 – 2.20 = 1.14 b?

And my trading record 🙁

Today’s Completed Orders
Symbol Action Qty Acct Type Price Total
GAME SOLD 181 CASH $10.85 $1,963.79
GAME SOLD 100 CASH $10.85 $1,084.97
GAME SOLD 20 CASH $10.85 $209.99

GAME BOUGHT 301 CASH $12.29 $3,706.29
bottom line: I lost a Dell laptop on this one 🙁

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