When Fools Were fools
Credit Cards, Cars, and Investments Gone Bad

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May 30, 2000

After four jam-packed editions of "When Fools Were fools," we still have more confessions to tell. Sad, but true. Everyone makes mistakes, including us Fools. In this fifth edition, Fool employees continue to tell the tales of their less-than-Foolish days and share the lessons they've learned along the way.

Nicole diVittorio, E-mail
In January of 1998 I had to have reconstructive knee surgery and the doctor was out of state. Health insurance companies don't really like it when you travel from Virginia to Connecticut for knee surgery, and to make a long story short, I had to pay 25% of a really expensive surgery. Since I didn't have any credit card debt, I used my card to pay for the surgery. About two months later I moved to San Diego, using my credit card along the way.

That credit card balance was soon pretty high, but never to the limit because the credit card company was nice enough to keep raising my limit. They are so thoughtful that way. Then lucky me got two more cards to run up. After about 11 months, I decided to move back to Virginia, using the credit cards along the way.

Finally I decided to consolidate all of my cards and pay one fixed interest rate with a loan from the bank. The loan I got was about $2,000 short of what I needed, but I wasn't going to argue. In 22 months, that will be paid off and never repeated. In the meantime, I am still battling that remaining $2,000, but it is under control and will be paid off shortly.

Al Silber, Business Development
I am sad to report that in making no decision, as the Rush song goes, you still have made a choice. Toward the end of 1998 my wife and I were very surprised and happy to have come into a small purse that we planned to one day use as a down payment on a house. We knew that this house was at least several years away. It was suggested and assumed that we would invest the money. We read several publications on how to invest through mutual funds, we looked at Wise investing books, and lazily tried to understand all this investing stuff. It seemed that whenever we were ready to put the money somewhere, one of us would get cold feet. Believe it or not, I had worked for a time in the back office of a derivatives trading firm, and I had watched as literally millions of dollars slipped between experienced traders' fingers. I hope I can be forgiven, then, for not differentiating between investing and speculating. Meanwhile, life went on, and under the usual strains of work, a 2-year-old, commuting, learning, a 2-year-old, horseback riding (her), martial arts (me), and so forth, 1999 slowly slipped by.

Then, in December, I came to work here at the Fool, and started to learn about the awesome power of investing, slowly letting money grow and grow. I have been reading as much as possible on the site. What really woke me up? When I figured out that my wife and I mentally snoozed through one of the best years ever to own equities! While our money sat, we could have been closer to our house by 20.11% even if we did nothing more than put it in an S&P index fund.

Jill Strass, Fool Labs
I have a tale to tell. I am a contrarian investor; I hate to buy a darling stock and I am always looking for stocks that are "on sale." I am not an expert in precious metals, but I didn't let that stop me from buying a gold fund when the price of gold tanked about four years ago. I thought, "Wow! Gold is the lowest it's been in years. Now is surely the time to buy." I was even so Wise as to think that Y2K would bring back gold. Well, I am still down 25% on that investment, and my heart sinks every time I get the fund's report in the mail. I may not understand much, but I know that parentheses around numbers is not a positive indicator. I should sell it, but I keep hoping....

The moral of this all-that-glitters tale is don't buy something you don't understand.

Frank Bosley, Customer Service
I was 21 and finally eligible to contribute to my 401(k) at work. I had no clue what it was all about, but everyone said that it was a good way to save for a house. I started out by putting in 6% so that I would receive the full benefit of my company's matching. Each year, I increased my contribution as my salary grew. While it was certainly Foolish of me to maximize my 401(k) contributions, I had all of my money going onto a Fidelity Interest Income account!

During 10 years of the greatest bull market ever, my savings were pulling in a whopping 4% return! I feel sick just writing about it. So where did I go wrong? Well, there was no Motley Fool to consult, so I asked the only person at my job who knew anything about investing. I only knew that he had lost a lot of money in the 1987 crash. Maybe that should've been a clue to look elsewhere. Seriously now, the real problem with asking my friend where to invest was the disparity in age. I was 21 and he was 61. He was pretty much burnt out as far as the market was concerned and told me that I should put all my money in the Interest Income fund because it was safe. Not knowing an index fund from my index finger, and not wanting to lose any money, I followed his advice. Needless to say, I didn't lose any money, but I could've reaped incredible returns if I had just done some research on my own, instead of letting the market intimidate me.

Duffy Winters, Business Development
We all know we should always read the fine print. OK, not just read it but actually understand it. My failure to do so meant that I paid $250 to borrow $280, making 18% interest on credit cards look like a bargain. I was in graduate school and had applied for a student loan and a fellowship. I was awarded both but didn't realize the loan was need-based. When I went to claim my loan check, the financial aid people said that since I had a fellowship, I was no longer eligible for the full $5000 loan but only for $280. So I took the $280 (in graduate school, money is money). OK, here's the fine print part -- it turns out Sallie Mae charges fees on the original $5000 loan, so when it came time to repay the loan, I owed $250 in fees on my $280 loan. Read the fine print.

Elizabeth Brokamp, Fool Labs
In a fit of car-envy, I bought a shiny black Honda Prelude from a relative who decided that he and his wife needed a mini-van instead. I knew that Honda Preludes were "great cars" from hearing who-knows-who say so, and, on the strength (ha) of that recommendation, I happily pursued financing and ended up with this gorgeous car and a less-gorgeous monthly payment. My dream state lasted about eight weeks until the car started having major problems. The last straw (for both me and the car) occurred when it broke down on a highway in Washington, D.C. -- and I found out that it would take over $1500 to fix it. I ended up turning it over to a dealer at a major loss. Then, to top it all off, I looked up the car's make, model, and year in Consumer Reports. Sure enough, though most Preludes had received good ratings, that particular make and year had been identified as a dud. The moral of this story? Research, research, research!

Selena Maranjian, Content
As I described in a Fribble, I lost $1,000 in a stupid way a decade ago. I'd seen lots of classified ads for $3 recipes in the back of women's magazines. On my trusty Mac, I created a 21-recipe booklet to sell for $5. I placed a $1,000 ad in Woman's Day magazine, figuring it was a sure thing. There were several million readers, and I only needed 200 orders to break even. Well, I only received two orders. In my certainty, I hadn't gathered some vital information: How many subscribers actually read the ads, and how many ordered anything? Did existing ads get any business? A little scuttlebutt mining would have served me well.

How can you avoid these pitfalls? Visit the Fool's School to get your financial education.