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My Worst Investment Decision

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If asked about their greatest investment decision, most investors will talk about a company they bought at a great price and sold later for great profits. They might mention a stock they purchased cheaply and still hold very excitedly. However, it is possible that investors are more passionate about the bad decisions they have made while investing. Often it is buying high and selling low, or selling a stock shortly before it takes off.

My personal investment philosophy was refined after a particularly bad decision I made regarding a stock. I anchored on the share price instead of focusing on the company. This is definitely not the Foolish way to invest, and my experience as outlined in this article shows that finding good companies to purchase is the way to go.

Good time to enter
In early 2009, I finally decided to begin investing in individual stocks. At the time, my previous investment experience was through the purchase of a mutual fund. After the financial meltdown of late 2008, however, many individual stocks caught my attention. One in particular was Ford (NYSE: F  ) . I drove a Ford at the time and figured that, in combination with the cheap price, made it a good place to start my foray into individual stocks.

At the time, the Big Three U.S. automakers were truly suffering. General Motors (NYSE: GM  ) and Chrysler were on the brink of bankruptcy, and Ford was not far behind. All three had been experiencing a financing crunch as part of the overall financial problems the country was facing. To make matters worse, the rising price of gasoline over the previous few years had made it more difficult to sell larger vehicles, which often came with higher margins than more fuel-efficient small cars. Even foreign auto manufacturers like Toyota (NYSE: TM  ) and Honda (NYSE: HMC  ) were feeling the crunch, albeit much less.

Wading into the market
I opened up a small position in Ford when it was trading at $1.92 a share. This would have been a great investment decision, had I been investing Foolishly. However, this article is about a poor decision, and it pains me to say that I got scared not long after and sold everything when the price dropped to $1.78. While my small investment would not have made me wealthy, seeing Ford stock trade around $10 a share the past few weeks helps reinforce that each investment should be made with a concrete plan.

I am still honing my overall investment strategy, but now I look beyond share price when selecting a stock to buy. I like companies with strong executive leadership and little to no debt. I value growth but don't shy away from established companies paying dividends. Finally, I have become a long-term investor, only selling when a dramatic change occurs and not at all based on the current gain or loss.

Always with a plan
As the market continues to swing up and down wildly, there are many bargains out there if you are prepared to buy. Please learn from my mistake; don't buy and sell solely based on share price. Each investment that you make, no matter how small, should be made with a clear goal in mind.

Mistakes are part of investing. Share one of yours -- and the lessons you learned -- in the comments box below to help fellow Fools become better investors. Also, use the Fool's free watchlist to track much more than the price of your favorite stocks. Start by clicking here to add Ford to your personalized watchlist.

Fool contributor Robert Eberhard likes Ford now and wishes he had held onto his holdings, but does not currently own any shares in the companies mentioned here. Follow him on Twitter @GuruEbby. The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of General Motors and Ford Motor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (11) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 30, 2011, at 4:27 PM, chroniczombie wrote:

    I remember when Google 1st came out w/ search engine -- I was so excited, I called my husband. "Can you BELIEVE it did it in 0.03 seconds?! I want this stock!" I don't remember what happened, but I didn't buy. Husband still makes fun of me calling him that day...

  • Report this Comment On August 30, 2011, at 7:32 PM, Morinfo wrote:

    Duh! Dummy me! Bought Ford for averting bankruptcy. Also they were supposed to produce small cars for the Asian market. My buffer was a small position in Ta Ta Motors, the Indian outfit that bought Land Rover & Jaguar. I was under the illusion that this would take off liike great. Didn't happen!!!

  • Report this Comment On August 30, 2011, at 9:18 PM, doctorolds wrote:

    How can you say Toyota did not feel the crunch? They lost over $1B more than GM in the first quarter of 2009!

  • Report this Comment On August 30, 2011, at 9:28 PM, usmcj80 wrote:

    I watched a friend of mine pick out a cheap penny stock ticker symbol JCOF. He got it at like $0.25 and it was up to almost quadruple that at one point. I kept watching it go up and down and figured I had some weird pattern down in my head. When it got back down to $0.53 I invested and bought 2000 shares. A week later they reverse split and I have yet to recover my money from it all the way. I plan on dumping once I get back to even but I will not be trying any get rich quick schemes anytime soon when it comes to stock

  • Report this Comment On August 30, 2011, at 9:33 PM, toughluck1122 wrote:

    Bought Mattel ahead of the Bratz ruling at $22.22 p/share. The recession hit and I got out around 17 as I watched the stock drop to $10. Had I stayed in, I'd have made approximately 20% plus a year and 1/2 of dividends. I never reinvested the money because I needed it for other purposes, but I wish I had stayed in it for the long run.

    Ford is a buy and hold for at least a year or two!

  • Report this Comment On August 30, 2011, at 10:00 PM, Acorn17 wrote:

    I remember that time pretty well and I would imagine some of the emotions going through your head watching Ford bounce around and keep moving lower. At the time I was thinking that at 2 bucks if Ford makes it the gains will be huge. I also had some memories of having invested in volatile penny stocks that went to zero. Now Ford is and was very different at the time, but with a mountain of debt and the industry going down the tubes, there was a VERY VERY high bankruptcy risk here. Possibly only a few months away even. That's why I didn't buy it (and wish now that I had). At that time going into Ford without some amazing insider information was pretty speculative -- at least it felt that way to me. Which is why when it became clear that they'd stay solvent the price rocketed higher in no time. If you sold because you realized after the fact what a bankruptcy risk they were, then maybe it wasn't a bad decision given the facts at hand, unless it was all speculative money anyway. But if you'd invested a meaningful chunk of your life savings, then probably not a bad decision -- just in hindsight since they pulled off such a miraculous turnaround. If they'd busted you might say that selling was a great decision, but at the time there was no way to know what Ford would do. Just some thoughts. . .

  • Report this Comment On August 31, 2011, at 3:30 AM, Clint35 wrote:

    My Mom kept talking about buying Ford when it was around $2 a share. I kept talking her out of it. Aren't I a great son. One of my earliest investments was buying shares of Owens Corning without doing a lick of research. A week later I found out they were going through bankruptcy and the shares would soon be worthless. I sold real quick so luckily I didn't lose much money. Around the same time I had bought shares of Intel. This was during the tech boom and they had just hit a new all-time of around $75. I bought in the $70s and sold around $23 after the tech bubble burst. But my absolute worst was Netflix. I bought around $30 and sold about $28. That one really hurts.

  • Report this Comment On August 31, 2011, at 8:04 AM, JohnQuill wrote:

    Many of my WORST investments tend to also be "linked" with some of my BEST investments!

    Ten years ago, I was looking to take a POSITION in the "Books and Music" stores, so I looked at Borders, Barnes & Noble, and Amazon. With about $5000 to invest, I bought about $1000 worth of each of these.

    I still maintain DIVERSITY, because these 'triads' of stocks themselves never make up more than 20% of my total portfolio.

    Dell, Hewlett-Packard, and Apple. See how this works? They say "two out of three ain't bad," but when it comes to investing, even ONE out of three (or even one out of TEN) does the job!

    These don't have to be in exactly the same sector, but I do look for a strong common connection. Here, it was retail: Abercrombie, Starbucks, and Sherwin Williams.

    Pfizer, Merck, and Schering-Plough (Merck and Schering-Plough are now one). Most of these companies I have held for well over a decade.

    More recently, I am building a position in Caterpillar, John Deere, and hmm, I'm still thinking about a third company here, but you get the idea. Even if ONE company fails miserably or goes bankrupt, I "chalk it up" as the cost of doing business!

    Sometimes, in fact many times, my WORST investments were often PAIRED with what became my BEST investments.

  • Report this Comment On August 31, 2011, at 9:01 AM, woomera08 wrote:

    In 1993, I told my wife that AOL would not surive (no reason to buy), people would not join just to get to the internet. Well, I was wrong, 24million people wrong.

  • Report this Comment On August 31, 2011, at 10:52 AM, XMFTheGuruEbby wrote:

    Thank you everyone for the wonderful comments. It appears I wasn't alone on my failure with Ford.

    Thanks for reading!


  • Report this Comment On August 31, 2011, at 7:19 PM, morningstara wrote:

    How about ALL us small time investors who bailed recently when Netflix and Apple started getting lower and lower....and paniced? Now I gotta buy BACK at 50.00 a share more for AAPL, and so and on ....what an idiot! I listened to investor friends FEARS!!!! OUCH!

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