Every player in Motley Fool CAPS, our online investing community, can post a quote with their profile, to gloat, lament, or just pass on a piece of Foolish wisdom.
My quote, in its entirety, is "Ouch."
If my CAPS portfolio spends any more time underwater, it'll spontaneously evolve gills. As of this writing, with my incredible current score of -63.02, and stunning accuracy somewhere south of 25%, even a score of zero would be a huge improvement for me.
In hopes of learning from my many enormous mistakes, and sparing you from the horrors of a portfolio -- in CAPS, or even worse, in the real world -- sporting more red than a fire engine, I've derived three crucial lessons from my CAPS misadventures.
Buy what you know
As a longtime Mac fan, I've got a pretty good understanding of Apple, my current best "outperform" pick. Informative articles from fellow Fools have given me a reasonable grasp on the competitive advantages sported by refiner and convenience-store operator Alon USA
But why, oh why, did I say yes to Northfield Labs? One upbeat Fool article about its nifty-sounding artificial blood substitute had me giving it the big green thumbs-up. By the time I learned about the company's lackluster performance, and the tricky, competitive nature of the psuedoblood market, it had already become a millstone around my portfolio's neck. I should have checked out the company's fundamentals before buying into the promise of its product.
In the golden prehistory of CAPS, when it was a quiet little internal Web game we Fools tested out around the office, my virtual fortunes were far better. Believe it or not, I actually cracked the top 10 a time or two. (That's admittedly a far easier feat in a pool of a hundred or so total players, rather than CAPS' current 25,000 and counting.)
But all the picks I scored big with in CAPS' previous iteration became some of my biggest losers when I moved them to the real thing. Netflix
But when the real CAPS arrived, I blindly gave the same stocks a thumbs-up. Were their P/E values overinflated? Were they trading too far ahead of their peers? I didn't even think to check. Hey, a good stock's a good stock, no matter what the price! Right?
Wrong. I wound up going long on Netflix in May 2006, just as it was hitting its biggest peak since 2004. A swift and painful decline followed, and my pick's now down 24.5%, against a more than 8% rise in the S&P 500. If I'd checked the stock's valuation before jumping in, I might have avoided this big loss.
Stick to your guns
Though most of my CAPS portfolio remains stubbornly submerged, there are plenty of stocks on which I won't admit defeat just yet. They're great, well-run companies, and just because the market happens to disagree at the moment, I don't intend to panic.
Look at Costco
Not enough for you? Consider Costco's classy move last October. CEO Jim Sinegal and CFO Richard Galanti, despite being cleared of stock-option shenanigans by the company's board, declined nearly $300,000 in collective bonus pay as an apology for a bit of fumbled accounting. The top brass says, "Please, don't give us extra money; we don't feel we've earned it," and Wall Street still remains lukewarm on the stock? Oh, Mr. Market, you so crazy!
The best mistakes you'll ever make
There's one major upside to my woeful CAPS record: In the end, my abysmal performance has only hurt my pride. CAPS has given me the freedom to try new strategies, and fail -- badly and often. Each time I fail, I learn. And by the time I feel confident enough to start investing my actual hard-earned cash into individual stocks, I'm hoping that CAPS will have helped me blunder my way a bit more toward brilliance.
Or, at the very least, adequacy.
Ready to start learning from your own mistakes -- or discovering the market mastery you never knew you had? Sign up for Motley Fool CAPS today. It's absolutely free, and packed with savvy advice from fellow investors. When it comes to investing, failure has never been so much Foolish fun.
Fool online editor Nathan Alderman would rather try and fail than never try at all. That said, success would be kind of awesome, too. For better or worse, he holds no financial position in any of the stocks listed above. The Fool's disclosure policy is always a winner.