Anyway, back during that whole debacle I was trading the S&P and the QQQ.
And the market went up and down every time a hanging chad was found or a ballot was disqualified. It was about as volatile as things could get.
I actually had one day where I lost over $23,000 in a single day.
And when I walked over to Tom Busby’s office to tell him my bad news, he just smiled and said, “Well, I just lost $50,000. Let’s go play golf!”
Now, I don’t really play golf, but at the time I was willing to do anything to get my mind off the losses.
In any case, we hit the ball for a while and when I got home that evening, I said to my wife, “Give me a stock to buy. Whatever comes to mind.”
She just slid a catalog at me across the table and said, “They have really good clothes!”
As I scanned the front page of the J. Jill catalog, my eyes came to rest on the tagline at the bottom which read “Clothes for the affluent woman.”
I had to look over and ask my wife, “Are we affluent?”
She just replied with, “Well… I just bought some of their clothes and they’re really nice.”
So the next day when I got back into the office, I looked up the company and found out that it was a public stock under the ticker JILL — and lucky me, it was only trading at $9.80 a share.
I thought, “Eh, what the heck. I’ll just buy 1000 shares.”
So I put in my order and walked away… come back a little while later and the stock is trading at $12.50.
Holy Moses! The thing went up almost $3 a share in an hour. I’m up almost $3,000, right?
Think again…
Turns out that I put in a market order. And while I didn’t know it at the time, JILL was a thinly-traded stock.
So it was my order and my order alone that ran that stock all the way up from $9.80 to $12.50.
See, with a market order, you get filled at the best (lowest) price first.
But once those sellers have all sold to you, you get filled at the next highest price.
That repeats over and over again, with the price going up each time you buy from all the available sellers at a particular price.
Because most stocks trade hundreds of thousands or millions of shares per day, there’s usually plenty of sellers for small-time traders like you or I to buy from at the current price.
As a result, it’s usually only Wall Street “whales” with massive, multi-million dollar orders that end up moving the market.
But on this particular stock, I was the “whale.”
See, I didn’t know it at the time, but the average daily volume on JILL at the time was just 30,000 shares.
So when I placed my buy order for 1000 shares at “market price”, I ended up running the price all the way up to $12.50 — a nearly 30% rise — in just minutes.
When I realized what happened, my eyes went wide and my heart sank.
And that’s today’s lesson. It cost me a bundle, but I’m sharing today free of charge:
You have to look at the average daily volume of a stock before you place an order — especially when you’re placing a market order.
Thankfully, the story has a happy ending.
I set several GTC (good-till-cancelled) sell orders for 100 shares every $2 all the way up to $22 and eventually got out of the stock at a profit.
Now, don’t go looking up JILL stock to see how my expensive mistake looked on a chart. Thankfully that mistake is in the dustbin of history.
See, J. Jill was taken private by Talbots in 2006, erasing any and all trading history.
In 2017, the company went public again, but none of that previous history shows up on charts. The furthest back you can go is March of 2017.
In any case, it was an important lesson for me — and as you can see, one of those stories I’ll never forget.
Always check the average daily volume before placing a market order.… or any order for that matter.
It’s a simple step that can save you from making an expensive mistake — because they don’t always have a happy ending like this one.
— Geof Smith
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