'Desperate Housewives' Rachel Fox Whomps the Market As a Day Trader
The stock market has become a favorite hobby for Fox, so much so that she has started a blog -- the catchy "Fox on Stocks" -- where she dishes investing advice, lessons on using stop-limit orders, and specific stock picks (both long and short).
So far, she's achieved results many pros would envy: Fox's returns have beaten the S&P 500 -- she allegedly made a 30.4 percent gain last year, compared to the S&P's 13 percent.
Is it just dumb luck, or does this teenager know something that you don't?
Play Money Then, Real Money Now
Fox credits her mother for first sparking her stock market passion. She taught her to invest using play money as a child. Now she's investing with real money, which means real, tangible gains and losses. Even at a young age, she's not without her share of Wall Street horror stories.
Fox's worst stock buy, she says, was made on the advice of a family friend at a Thanksgiving dinner. The $2 stock was apparently destined to hit $10, but instead dwindled into a penny stock.
A much better result came when she shorted iconic jeweler Tiffany (TIF) immediately before the company's disappointing Jan. 10 earnings call, after which the stock dropped from $63.12 to $59.49. She knew the stock was going to dip, she says, because she was paying attention to the company's financial expectations.
Turns out Tiffany had lowered its outlook before it released earnings. By acting at exactly the right moment, Fox was able to swoop in and gobble up some sweet returns as a result.
High Risk, High Rewards
Clearly, this is one teenager who does her homework. Every day, Fox pores over the financial news sites and annual reports. Like her idol, Warren Buffett, she says she ignores the sensational white noise of day-to-day news feeds.
She has also given a lot of thought to what her individual investing strategy is. And while she has been successful so far, that doesn't mean her strategy is right for other investors. In short, Fox likes to day-trade. After all, she can afford to take risks; she is a young, successful actress who likely has little in the way of debt right now.
Last year, Fox made a remarkable 338 trades. Not only would the fees (and potential taxes) associated with this high number of transactions hurt an investor's overall returns, but the risks involved could easily exceed the tolerance of an average investor, burdened by student loans, bills, and a mortgage or rent payments.
On her blog, Fox is candid about the dangers inherent in her style of investing versus standard investing practices. The difference? Investing generally consists of holding a stock for a much longer time period (at the Motley Fool, we generally think of five years as a good minimum) versus the knee-jerk decisions that can come out of day-trading.
For the old fuddy-duddies, Fox writes in a blog post: "While I much prefer making my money quickly and in a "high-risk = high reward" fashion, long term investing is great for people who are older or people who are more comfortable with safer investments."
At the end of the day, it's good that Fox understands her methods won't work for everyone. Some of her tips, like flipping a stock immediately after its earnings are released, are too extreme for the everyday investor.
However, it's clear that Fox has thoroughly studied this stuff. She is a smart young woman and a good role model for brainy teenage girls everywhere. If she can keep her head on straight, the investing world might be hearing from her for a long time to come.
Caroline Bennett is a Motley Fool contributing writer.
Photo Credit: Larry Busacca/Getty Images for Tribeca Film Festival