When Fools Were fools
More Investing Blunders

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February 17, 2000

No one's perfect. And that goes for us Fools, too. "When Fools Were fools" is a special feature series where brave Fool employees admit their most unFoolish financial moves. And after three editions, we've still got more to confess. In this fourth edition, our once unFoolish Fools share some of their worst investing blunders. Hopefully, reading about these not-so-successful investments will help you avoid making the same mistakes.

Selena Maranjian, Editorial
It was 1994 and I thought I was being smart. I read an article somewhere highlighting the amazing 1993 performance of Fidelity's Emerging Markets mutual fund. How amazing? Well, it grew an astounding 82%! I thought to myself, "Gee, I'd love to earn something like 82% per year. Even if the fund doesn't do quite that well again, it's probably managed by clever people, and they should surely be able to find some wonderful companies in which to invest in the many emerging markets out there." Well, after earning 82% in 1993, the fund hasn't fared quite as well. In 1994: down 18%. 1995: down 3%. 1996: up 10%! 1997: down 41%. 1998: down 27%. 1999: up 70%. Had I left $1,000 invested from 1994 through 1999, I'd have ended up with about $650. I learned that the mutual funds that do really well in one year often don't repeat that performance. And that one unusually strong year will inflate the average annual return that a fund touts in its ads for many subsequent years. I think I'll stick to index funds and individual stocks now.

Brooke Dixon, Techdome
When I first got into this whole investing thing, I used to think that I could actually time the market and buy into companies based solely on volume and things like that. Anyway, to make a long story short, I bought a stock called Comparator Systems for about $0.15 per share. The volume was outrageous. They had some thumbprint technology that was going to change the world. The day that I bought in there were about 25 million shares traded, which is really high for a no-name company. The next week the volume hit something like 150 million shares, a Nasdaq record! By the time I got my sell order in at about $1.25, trading was halted. Turns out that the accounting was all screwy and all kinds of people got into trouble. Three months later the stock was valued at $0.01 and four years later it is worth about $0.005 a share. Woo hoo! The only justice is that Schwab took an institutional position at about $1.10 and never got out. Needless to say, I am much happier with investments like Amazon and Oracle.

Ann Coleman, Editorial
Back when I was doing the white picket fence thing, I had a pretty good deal with a 401(k) plan. The company was mega-generous with matching contributions and had a broad range of options available to investors. In a short time I had a respectable chunk put away -- 50% in stock funds, 40% in bonds, and 10% in a money market fund. Year after year, I tracked my returns and noticed that despite the occasional off year, the stocks were soundly outperforming the bonds and money market funds.

Around 1993 is where it gets foolish. I had finally started learning a little something about investing, and I understood that what I had been seeing in my own account was actually a reflection of a long, long historical trend. Stocks had always outperformed fixed securities over the long term. Every quarter, when I put in the numbers, I would have this mental conversation with myself.

"Hey, you really should get out of those bonds."

"Yes, I really should."

I thought about it and did nothing from 1992 to 1998. I spent the first half of the Great Bull Market ignorant, and much of the second half indecisive. Frequent trading, jumping in and out of stocks, and hasty decisions are about as close to a recipe for disaster as I can think of, but passively taking no action as I did isn't such a hot idea either.

Jeff Fischer, Editorial, on behalf of the Rule Breaker Portfolio
The Rule Breaker Portfolio (then the Fool Port) bought ATC Communications in 1996 and sold it in 1997 for a greater than 80% loss, our largest loss in history. Our mistakes? Numerous. We all but assumed that the company would continue to blow past earnings estimates because it had in the past and estimates hadn't yet been raised. We arguably didn't THINK about the company's business enough before buying: It was in telemarketing, Fools! We bought stock in a telemarketing company! Who likes telemarketers? Nobody! At the time, though, telemarketers were all the rage: a booming business. Perhaps we unFoolishly got swept up in that. One lesson we learned: invest in businesses you love, not just in impressive-looking growth estimates. For numerous other lessons learned, please see the link above.

Julieta Stack, BizDev
I was trying to get on the LPGA tour, and had very little money. Someone close to me suggested I buy a 33-foot-long motor home so that I could save on hotel and airplane expenses. I listened. It cost me a fortune just to drive and maintain the thing. Then, just when my game was beginning to gel, the motor home was stolen. The thief blew the engine and totally trashed it. I spent about a year trying to get it fixed (my insurance company was a fly-by-nighter and barely paid for any repairs). Once I finally fixed it and sold it, I was out about $10,000. With tournament expenses, qualifying schools, and all the other expenses it takes to get a tour card, coupled with the big motor home debt, I left Florida and that dream behind. Now I'm working at the Fool, teaching inner city kids how to play golf, and living a much more Foolish and fulfilling life. The moral? KISS -- Keep it simple, sweetheart!

George Runkle, Community
What was one of my more foolish adventures? It had to be the time I bought shares of Morrison Knudsen. I read that you need to "buy what you know"; I'm an engineer and have been in construction for years. I knew of Morrison Knudsen and that they built big things. Did I know that they were having financial difficulties? Well, sort of. Heck, it was a turnaround bet, nobody would let that company disappear. They didn't either -- it was recapitalized and the new stock went to the creditors. My investment became worthless -- well, I got some warrants that were worthless. It was a good example of "a little bit of knowledge is a bad thing."

Karen Kosoy, Customer Service
Fool that I am, I try to look forward and not back, but as they say, only hindsight provides the best foresight. I'd say that one of my most unFoolish investing moves (and there have been plenty) was when I sold my AOL stock back in 1996 after it doubled. Here I was, working on AOL as a volunteer Motley Fool staffer, using AOL every day, seeing my children using this service, and I was unable to see the long-term vision. So, I sold the stock. OK, you think that was really the foolish part? No, there's more. I took the profits and invested them in Iomega. Check out those links to see the returns over the last four years. I did re-buy my AOL in 1998 and decided to hold for the long term. This time I promise to ignore all the "Wise" analyses of AOL and decide for myself.

Heather Wilhelm, Editorial
In a former life, I worked for a financial publication where I read very Wise stock advice on a daily basis. One publication that came across my desk pretty frequently was "The Cabot Market Letter" written by a guy named Carlton Lutz. Every month, Carlton would show the returns of his recommendations, some up as much as several hundred percent. "Man," I thought, "I need to hop on board this train!" And then Carlton started talking about a company called Presstek. Presstek had something to do with printing presses. Every week on his taped hotline I'd hear Carlton say that Presstek was "The Stack (Carlton was from Boston) of the Decade." I watched for months as the stock went through the roof. Finally, I'd had enough. After a correction, the stock appeared to be shooting north again. During lunch one day, I hurried down King Street to Charles Schwab to make the buy. I was told the stock was too volatile to place an order over the phone. I bought in higher than I would have liked, but I didn't want to miss out on the "Stack of the Decade" again. By the time I walked back to my office the stock had fallen about 25% from where I bought. That was the start of a long decline. I eventually got out after the stock recovered some, but I still lost a chunk of change. Could I have possibly handled this situation any less Foolishly? I doubt it. I bought a stock I didn't know much about because some Wise guy recommended it. My new investing strategy? Simple. Do my own homework.

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.