Post of the Day
January 5, 2000

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Rat's Broadband Bandwagon

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Subject:  Re: Newbie - and I need help!
Author:  Mgk

Mark - not kidding...what would be best direction... TOm

TOm,

I'll post this on Board (and via email) since someone else in similar position may benefit.

Those who know me 'round these parts also know that I don't believe in giving others personal advice about specific investing. Am outspoken about a lot of things, and taking advice from strangers (even well-meaning ones) about how or when to invest is - I think - an unfortunate and much-abused practice. So, instead, I'll simply enumerate some general principles that come to mind. Bear with me, and take what you can use.

Keep in mind that only you know what your goals are for time frame, investment targets, risk tolerance, family and personal needs, etc. Hopefully, you have based your decisions on rational and practical considerations. If so, simply review your program. Perhaps you forgot to factor in the possibility or even likelihood of losing money. Unfortunately, that is an all-too-easy mistake, given the current climate, esp. when everyone, including your neighbor, thinks they have suddenly become investment gurus. After all, they watch CNBC. They even understand Joe Kernen, and Maria Bartiromo (after months of listening and taking notes, mind you.)

The problem with message boards is several-fold:

1. Unscrupulous posters who inflate their own importance, and tout or cheerlead stocks to influence unwittingly naive investors.

2. Genuinely savvy folks who understand their needs, and the market, and have devised a system for themselves that works great for them. So, when they discuss their successes, or decisions, it seems like they have discovered the Holy Grail. But, they can't tell you in such limited space about all the OTHER things they do for protection, or what they GUARD against.

3. Other NAIVE posters, who are still learning, and who have been lucky (easy in THIS market) - and who want everyone else to know. Makes it SEEM so easy to everyone else, too.

4. All the other pitfalls...

You have generously filled out your MF "profile", and I see that you are involved professionally with Information Tech. You're obviously a bright and sensitive guy. And worried about your investments, feeling badly about possible mistakes. Apparently (as you allude to) you are feeling a victim of your own enthusiasms. My guess is you are no different in that regard from countless others who will make their first foray into the market with their own investments this year - encouraged by the wildly unbelievable returns of last year. My hope is that you would utilize the same diligence with investing that you would with your IT consulting. The market always needs intelligent investors - there are already quite enough people getting duped by brokers, etc.

"The hardest thing is to admit that you may be too "green" to embark on an endeavor."

The hardest thing is to admit that you may be too "green" to embark on an endeavor. We were all there once. There are many ways to prepare - books, watching, talking with others, following media - and all are valid. Useful sometimes to put a toe in the water, first, before plunging. But, all that said - if you have already plunged, then all is not lost. Far from it. You've had some excellent advice already from some very respected members of this community. Ironically, you have chosen a very tough market, at a very "precarious" time. Undoubtedly, there will be at least one "relief rally" ahead of us. It may not be tomorrow, necessarily. You can utilize this opportunity to sell all or part of your positions, as previously suggested. Be prepared for that lesson to cost you something. Perhaps will be the best money you ever spent. Cutting your losses means that you will not leave yourself open to further injury (at least with that portion of your investment). You MUST decide what your risk tolerance is. Once you have, then try to hold to that decision, unless your circumstances dictate changing. In other words, when you invest any amount - have in mind a figure below which you would not feel comfortable in LOSING more. 20%? 35%? Keep in mind that with highly volatile stocks, the fluctuations can be large. Well-respected authors often suggest not to tolerate any loss beyond 12-15% (e.g. O'Neil) or less. (Personally think that "stops" and "limits" are a bit complex for the new investor, but "vigilance" usually works just fine.) The thing is that YOU must decide. With many Tech stocks, esp. those that have enjoyed big gains, it is likely that you will see reversals of at least 20%, and recoveries of that magnitude as well. Frankly, not everyone has the stomach for such volatility. You need to recognize and admit to yourself whether you do. As the Gardners are quick to point out - it is a travesty to make your life miserable over your investments. Life has far more important joys to offer. Fortunately, there are other, less volatile investments as well - so everyone can choose the investment strategies best suited to their temperaments.

Individual stock decisions about which companies to invest in then simply become an extension of your overall program. Is this stock too volatile? Is the run-up likely to be unsustainable? Is it near all-time highs? Is the market due for correction? Does this fit into my overall portfolio scheme? Do I have enough diversity among sectors? How will this stock likely weather a downturn? Should I just watch it awhile, and see? When is the next earnings report, and is it likely to be good news? Is this recent run based on an event like a split announcement - and what may be the effect once that event has been discounted?

If the market were easy to predict, or if it ONLY went up, then we'd all be millionaires (and probably invested in interest-yielding bonds by now). All you can do is to keep learning and invest when you feel comfortable - having answered as many DD questions as you reasonably can. Even then, you don't have to live with your mistakes. Someone will always be willing to buy it back - although it may be lower than your purchase price. Chalk that up to the cost of an education. We're all paying tuition, believe me.

Apologies for the long ramble,
-Mark

P.S. Glad to recommend books, other resources that I've found helpful. Sure that others would too. Just let us know.

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