When Fools Were fools
Investments Gone Bad

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October 11, 1999

That's right Fools, it's time for another exciting edition of "When Fools Were fools" (WFWF). Here's a quick review for those of you who missed our first episode. In this series, brave Fool employees share their most unFoolish experiences. We all make mistakes and WFWF (not to be confused with WWF) is the place for us to admit them. In this edition we'll be covering bad investing decisions. Hopefully, reading about these not-so-successful investments will help you avoid making the same mistakes.

David Forrest, Operations
I'll admit it, I got Dorfed. For those of you who are uninitiated or just getting around to watching the stock market, "Dorfed" refers to the phenomenon that swept CNBC viewers a few years back when a financial "journalist" named Dan Dorfman infected the airwaves with his daily market diatribes. Each day he'd come on and talk about how this company or that company was poised to make a big move one way or another. His bushy eyebrows would rise and fall madly as he talked about takeovers and impending implosions. I got Dorfed. The Timberland Company (NYSE: TBL) was my downfall. I had already heard whispers about Timberland possibly being taken out at $40 a share. The stock was $27. The seed was planted and there was Dan Dorfman telling me that Timberland was "in play." I bit, bought, and got burned. I ended up selling Timberland at $18 and lost $2,000 or so. Nice. What a fool I was.

Buck Hartzell, Techdome
My dumbest investment was an idea I got from a respected college accounting professor. At the time I had been considering Disney (NYSE: DIS) as my next purchase, but I thought it was a little bit pricey. During one of my classes, the professor mentioned that she was purchasing Euro Disney (OTCBB: ERDB F) stock. It turns out that Disney was raising money to build a new theme park in France. This seemed like a slam dunk to me. After all EVERYBODY loves Disney. Right? What a great opportunity to get in on the ground floor and ride this baby all the way up.

I bought the stock without doing any research on the project. I figured it's Disney and everything that they touch turns to gold. I had never been to France, wasn't familiar with the location of the site, the weather patterns, or any of the details of the project. It turns out that I watched as my investment dwindled to almost nil. Fortunately I didn't invest a great deal of money. However, I learned a lot of lessons from that mistake. First, never take tips or blindly follow someone else's advice. Second, take the necessary time to thoroughly research all potential investments. Third, past successes do not guarantee future performance. Fourth, be particularly cautious when investing in companies that are venturing outside of the U.S. into unfamiliar territory (different values, norms, cultures, etc.). Finally, I learned that it often pays to hold off your investment dollars until a venture establishes a pattern of successes, not to mention positive cash flow. Thanks for the lessons, Mickey.

Matt Richey, Editorial
Back in January 1997, Micrion Corp. (Nasdaq: MICN) looked like a table-pounding buy. The company's focused-ion-beam technology did something related to the manufacturing of semiconductors and disk drives -- and anything related to those two sectors was on fire. Wall Street's analysts were bullish on the company's outlook, giving it a "strong buy" rating. And to top it all off, the stock was cheap! Based on the consensus estimate for earnings, the shares were selling at a forward price-to-earnings ratio well below the estimated growth rate. How could I go wrong?

At $25 per share, the stock had been moving up strongly, more than doubling over the past two months alone. Folks on the message boards said this puppy was on its way to $40. With such strong price momentum, the backing of influential analysts, and a red-hot disk drive sector, I knew I better get onboard, and quick! At the time, I was rather new to the world of stocks and investing, but I certainly knew better than to take this kind of momentum-driven gamble. Even so, with dollar signs flashing in my eyes, I hit the buy button on Micrion in mid-January at $25. The shares hovered in the mid-$20s for a few weeks, but then began to plunge in February. By mid-March, the stock had fallen all the way to $15. At that point, I cut my losses -- all 40% of them.

Ouch! As you can see, my preferred method of learning is... The Hard Way.

Jeanie Macaulay, Community
OK, so I was young, greedy, and stupid. The public relations firm where I worked had a new client who had invented The Better Mousetrap of automated voting machines. This was cutting-edge technology for the 1970s -- it would process ballots faster and eliminate human tabulation errors. The city of Dallas had already tested the machines and there were whispers that Detroit would be next to sign up.

So I persuaded my new husband to invest our entire savings of $2,000 and a few days later -- as rumored -- the company landed a huge Detroit contract. Even better, The Wall Street Journal was going to run a story the very next day. Oh joy!

Our dream of riches blew up when we saw The Wall Street Journal headline: "Former Dallas Mayor Blames New Voting Machines for Election Loss." Detroit canceled its contract and the stock price was cut in half the same day.

A thousand-dollar lesson in NOT buying on rumor.

Tony Miller, Community
Life before Fooldom proved very costly. My wife and I were married in 1982 and by 1986 had $10,000 to invest. Knowing nothing about investing, we sought the help of a broker from Prudential (then Prudential-Bache) to assist us with investing this nest egg, hoping it could prove to be the beginnings of future wealth.

The broker came to our home and urged us to invest in real estate partnerships. He used lines like, "It's very safe, a good way to realize excellent future gains." He continued with, "I put my own parents into this." When I suggested putting the money into stocks, like Microsoft (Nasdaq: MSFT), he frowned telling me, "I'd almost refuse to allow you to risk money that way. Stocks are much too dangerous." So, real estate partnerships was where we invested the money.

Then came tax reform and the bottom fell out.

Fortunately, there was a settlement between many investment companies that sold these vehicles and the government. After filling out stacks of forms and including quotes from the broker, we were able to recoup our investment years later with a modest amount of interest. It could've been much worse, but the loss of opportunity throughout that time was a painful lesson.

Keith Pelczarski, Special Projects
In May of 1995, at the height of semiconductor mania, I sold off positions in Apple (Nasdaq: AAPL) (good call) and GE (NYSE: GE) (bad call) to make a terrible purchase -- Genus Inc. (Nasdaq: GGNS), a semiconductor capital equipment company with a few "revolutionary" products. I thought I was being thorough in my research, reading through the 10-K, the 10-Q, the annual report, an S&P report, and earnings estimates from several sources. I even called the Genus investor relations department several times to have questions answered. Sadly, for as much research as I did on the company, I was way out of my league trying to assess the overall semiconductor market. Even worse, I didn't have the good sense to bail when things turned for the worse.

I had the certificate up on the wall for a few years here at HQ, along with an annotated chart explaining my pathetic "thought" process. Genus recently announced a "revolutionary" new Atomic Layer Deposition product and has made a couple cents per share over the past six months. Who knows, maybe enough other naive "investors" will pile on this time so that I can get more than a tax loss out of the bargain. Anyway, the moral of the story is that research isn't always enough, and that understanding the environment in which a company operates is an important part of evaluating an investment.

Erik Rydholm, Business Development
In 1993, well before all this Foolishness, I sunk a bunch of dough into a company called New Image Industries. The company manufactured pen-like video cameras that dentists poked around your mouth so you could see your tartar and decay on a 19-inch television screen. The idea: see more decay, order more dental work. David Gardner had held the stock from $4 all the way up to $19, which is when he happened to tell me about it. A few weeks after I bought it, the stock suddenly dropped all the way down to $3. What happened? Who knows? My entire rationale for the purchase consisted of, "Heck, David's in it, and he knows stocks, so I'll get into it, too." The best stock tip in the world is to never take stock tips. Not even from Fools. I don't blame David. He found this company on his own and quadrupled his money. I stole it from him and lost 80% of mine. That's my fault.

How can you avoid these pitfalls? What should you do before you buy or sell that stock? Visit the Fool's School and learn the basics.