Fribble Tuesday, January 11, 2000

I Crushed the Market Last Year!

By Lydia Vorsteveld (lacow@cyberhighway.net)

I crushed the market this year. Yup, my portfolio was up 32.7% after my very first year of investing. I should be proud of myself, right?

Well, actually, no. There are a few reasons. First off, I know lots of people did much better than I did. Second, I reached my goal of beating the S&P 500 (up about 20%), but I fell short of my goal to net a 62% (very ambitious) annual return. Well, at least I was aiming high!

But the main reason I'm not having business cards printed to read "Lydia 'Queen of Stocks' Vorsteveld" is that I realize, more than I did a year ago, how much I'm still learning about investing. In fact, I'm viewing the next five years as my stock investing apprenticeship. If I make money, fine. If not, I'll be getting high returns in knowledge and experience.

There are several things I'm grateful for learning this past year; however, two stand out:

Lesson 1: Some stocks go down and stay down for a long time, maybe forever.

Lesson 2: All stocks go up and down -- a lot.

When I started investing I knew about Lesson 1. It just never occurred to me that some of the stocks I bought would decline. You see, I thought it only happened in other people's portfolios.

So, it may sound odd, but I'm more thankful for my shares of iVillage.com (down 78%, ouch!) and Sears (down 26%, eeek!) than my shares of Amgen (up 122%, yippee!). Yes, it does hurt to make a bad investment. Yet, as a beginning investor, the dogs of my portfolio are more valuable to me than the darlings, like Yahoo! (up 119%, thank you very much).

The second lesson learned is that even though I managed to come out ahead for the year, there were days when my portfolio was down -- way down. It wasn't uncommon for a stock I held to fall or rise over 15% in one day. That's called volatility, and it comes with the territory.

In the first few weeks of 1999, I put myself on a gut-wrenching roller coaster by checking my rockin'-and-a-boppin' portfolio daily -- OK, several times daily. Yet, despite the stomach pains, volatility -- like iVillage.com and Sears -- became a blessing in disguise. Large price swings forced me to ask hard questions I wouldn't have otherwise asked.

For example: "OK, Amazon.com was down 20% today. Do I still think it has a great business model and sound executing strategy?" Amazon.com, like any Rule Breaker investment, requires a love of the wild ride.

After a few ups and downs, I started to enjoy the roller coaster ride on Wall Street. My long-term investing perspective kept me strapped in and safe, like a seat belt, through high-flying rushes and sickening drops.

Looking back over my investing initiation year, it was gratifying to finish with one-third more money than I started with, but my highest returns have been in some Foolish lessons learned.