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Are You Ready for Stocks?

Shortly after founder Jeff Bezos was named Time magazine's 1999 Person of the Year, I bought shares of (Nasdaq: AMZN  ) -- my very first stock purchase. Here's what happened over the ensuing three years.

Surely I could blame my 80% loss on the 2000-2001 recession, 9/11, and inconsistent growth at the Web megastore. You might even believe me.

But none of that is the truth.

The truth is that -- like a teenager left home alone for a week -- I wasn't ready to handle the responsibility of managing a stock portfolio. As a result, I trashed my savings faster than the frat boys of Animal House could crash a sorority social.

Are you ready?
Yet I should have known better. Let's review my mistakes step-by-step so that you, my Foolish friend, don't repeat them in your own investing.

My first mistake was giving Time too much credit. Sure, it's a great magazine, and being named Person of the Year was a huge honor for Bezos. But there's zero correlation between good publicity and superior stock returns. Having been in the PR biz, I knew that as well as anyone.

Did I listen?

Of course not.

My second mistake was falling in love with the business. Amazon tempted me with convenient Christmas shopping. Visions of pre-wrapped gifts and time away from the mall danced in my head as I pressed the buy button -- having never once considered how long it might take the e-tailer to reach sustainable profitability.

My final mistake was being in a rush to become an owner. I figured, wrongly, that the stock was on a permanent upward trajectory and that if I didn't buy soon, I'd be left in the dust. You've seen the chart; you know how stupid that was.

Revisiting a classic commentary
See the pattern here? I goofed because:

(a) I didn't do any meaningful research,
(b) I let emotion corrupt my assessment of the business, and
(c) I was in a hurry.

Conversely, in 2002, I began investigating the best investment of my career, Akamai Technologies (Nasdaq: AKAM  ) . It didn't become a recommendation for Motley Fool Rule Breakers until the May 2005 edition of the newsletter, though the stock has become a four-bagger since.

I've received many notes of thanks for that pick. But the truth is that many others besides me deserve thanks. Former Fool writer and value manager Whitney Tilson has a claim thanks to this column, which he published at roughly the same time that I was buying shares of Amazon.

The entire article is a must-read for any of you who are even thinking of picking stocks. But this is my favorite passage:

"Numerous studies have shown that human beings are extraordinarily irrational about investing. On average, we trade too much, buy and sell at precisely the wrong times, allow emotions to overrule logic, misjudge probabilities, chase performance, etc. The list goes on and on. To invest successfully, you must understand and overcome these natural human tendencies." [Emphasis mine.]

Oh, how I wish I'd read that before I spent a dime on Amazon.

Follow the money
But it's never too late to follow Whitney's timeless advice. So, before investing in stocks, read his column. Then visit our Fool's School. After that, take a look at some of the best books on how to invest successfully, beginning with Peter Lynch's One Up on Wall Street. And be sure take your time with the learning process -- the market will be there, waiting, when you're finally ready to pick stocks on your own.

Interested in more investing advice? Consider our Motley Fool Green Light newsletter service. Therein, co-advisors Dayana Yochim and Shannon Zimmerman show you how to unlock the hidden fortune inside your paycheck. You'll find tips worth $1,576 in the March issue alone. Click here to get your copy and 30 days of free access to the service. There's no obligation to subscribe.

Fool contributor Tim Beyers writes weekly about personal finance and investing basics. Have a Foolish money tip? Tell him.

Tim owned shares of Akamai at the time of publication. All of Tim's portfolio holdings can be found at his Fool profile. His thoughts on Foolishness and investing may be found in his blog. Amazon is a Stock Advisor pick. The Motley Fool's disclosure policy is ready to make you rich.

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