When I was younger and new to investing, I made some pretty stupid decisions. I bought stock in Sun Cal Energy and the now-deceased Infinity Medical Group based on someone's tips that they were "about to make billions!" And in 2007, when it was at $35.51 per share, I bought stock in Titanium Metals
Tune out the well-meaning morons
Yeah, people who offer their advice mean well -- or at least most of them do. But when you listen to the hottest gossip right off the street without doing your own research, you may end up putting hard-earned dough into a broken oven. For example, if I had taken a quick look at the income statement, I would have found that Infinity Medical was grossly overvalued, continuing to rack up debt, and quickly headed for disaster. But did I check? Nope. Goodbye, moola.
Investment Lesson No. 1: Do your due diligence before buying a stock.
Bungee-jumping is not for Fools
When a stock's been climbing and it looks like the sky's the limit, it's probably a good idea to ask yourself why. In 2007, Titanium Metals appeared to have everything going for it. Since 2003, it had more than tripled its net sales, reduced its long-term debt from $207 million to next to nothing, and had started paying dividends. Time to jump on board, right?
Wrong. One of the key factors in Titanium's sales growth was the inflated value of titanium. In addition, more than half of Titanium's sales came from a handful of heavily cyclical commercial aerospace companies, including United Technologies
Because Titanium relied so heavily on those companies, I should have taken a look at their income statements and risk factors before buying shares. But did I? Again, nope. Maybe if I had, I would have noticed when Boeing announced in mid-2007 that it would have to push back delivery dates on its 787 Dreamliner aircraft.
Investment Lesson No. 2: Never forget Investment Lesson No. 1.
Develop the intestinal fortitude of a lion!
We've all heard the stories: Someone bought a young tech stock at $15 a share and sold at $40 -- only to watch it split and then grow beyond their wildest dreams of avarice. Sad day for that sucker; glad that's not me! Oh, wait … I bought Infinity Medical Group. Well, phooey; at least I still have Titanium Metals. Ah, yes, that’s right, I held on to Titanium, even when it came close to bottoming out. My reasoning was pretty much "well, it can't get any worse than this ... I hope." So far, I've been right about that one, and that leads me to my last lesson:
Investment Lesson No. 3. Don't sell just because of a few bad years. Invest for the long run.
Hooray! I've learned something!
If I had sold Titanium Metals toward its bottom, I would have lost more than I care to admit. I also learned my lesson about doing my research in the process. In all, Titanium Metals shows signs that it's a good company for the long run.
So there you have it, dear Fools -- lessons to invest by.
Want to keep up with any of the stocks I named above? Add them to your watchlist!