The dumbest investment-related thing I've ever done is not doing enough research -- getting juiced up on a stock because of a great story but not spending the time to investigate how that great story could become an unhappy ending. It's why my ghosts of investing past include Enron and a few companies that no longer exist.
Lesson learned ... usually.
Hopefully you can learn from my mistakes and those of my fellow analysts, who share the dumbest things they've ever done below. Learn on!
Rick Munarriz, Fool contributor and Rule Breakers analyst
Impatience is an investor's biggest weakness. I lived it. I began investing in the early 1990s, and one of my first stocks was biotech darling Amgen (Nasdaq: AMGN). This may be a sleepy drug giant these days, but it was a hot growth stock at the time. A few weeks into the ownership process, the stock took a hit on a rare off quarter. I cashed out at a loss. Naturally the stock quickly resumed its winning ways. I am probably one of the few people that actually lost money on Amgen in the 1990s.
I'm more embarrassed when it comes to Intuitive Surgical (Nasdaq: ISRG). I bought into the surgical robotics specialist in early 2005, well before the Motley Fool Rule Breakers newsletter service recommended it to subscribers at $44.17. A few months later, I sold after the stock had nearly doubled in my portfolio. It was a great trade, but I kick myself now that I see the stock has popped sevenfold on the newsletter's scorecard.
Matt Koppenheffer, Fool contributor
This is an easy one: Scottish Re Group.
If you're familiar with Berkshire Hathaway's (NYSE: BRK-A) Gen Re subsidiary, then you know that it is an insurer for insurers. That is, for a piece of the action, Gen Re takes on part of the risk that their insurer customers assume from their clients.
Being a Berkshire subsidiary, it's probably not all that surprising that solid financial strength is a cornerstone for Gen Re. And when you're a reinsurer, that's a must-have since insurers are very picky about who they're willing to share risk with.
Scottish Re is a reinsurer focused on the life insurance industry. A few years ago, it came to light that Scottish Re's management team had been too aggressive with its tax planning, and the company had to take huge writedowns on their deferred tax assets. The losses weakened the company's financial position, which led to ratings downgrades and worried customers. With all of that, the stock got hammered, management was upended, a big capital infusion came from big outside investors, and I decided to invest.
But the poor tax planning wasn't the only skeleton in Scottish Re's closet, and prior management's attempt to increase investment income by buying lots of subprime mortgage debt soon blew up in the company's face as well.
I had ignored the likelihood that lousy management had done more than was initially discovered, and for that, I had the pleasure of watching most of my investment go poof.
Alex Dumortier, CFA, Fool contributor
It's difficult to pick a single one out! At some point during the technology bubble, I invested in Siebel Systems, a customer relationship management software company that was acquired by Oracle (NYSE: ORCL). Looking back, it's clear I showed a willful disregard for some simple numbers that should have led me to seriously question the decision to invest. Indeed, Siebel's valuation implied a 40% compound annual growth in earnings per share over the next seven or eight years. This was no micro-cap company, and those numbers should have been an enormous red flag!
Instead of giving some serious thought to whether or not that was realistic, I managed to convince myself with wooly affirmations such as "their market opportunity is huge." Numbers don't have an agenda; if simple, robust metrics are flashing red, there is still time to use your common sense and ask yourself whether a profitable outcome is likely, just possible, or utterly improbable. This lesson applies to any investment, but it's most useful in growth stock investing.
Tim Beyers, Fool contributor and Rule Breakers analyst
I've done plenty of dumb things in my financial life. I've piled up debt, paid it off, only to pile it up again. I've bought covered call options before really understanding what they could (and couldn't) do for my portfolio. But of all my numbskull moves, none were as jump-off-the-bridge stupid as buying shares of Amazon.com (Nasdaq: AMZN) shortly after CEO Jeff Bezos appeared on the cover of BusinessWeek in 1999.
Not that Amazon was a bad business. It was, and still is, a wonderful business. My problem was one of timing; I bought at the point of maximum optimism. Skeptics had run for the hills.
The months following my purchase brought the end of the dot-com bubble and a prompt devaluing of my shares. I'd sell years later, in the single digits, at the moment of maximum pessimism. Yep, another stupid move.
Fortunately, this ugly story ends well. For as much as that Amazon bet cost me, I've since learned the art of betting on misunderstood growth, betting big when wrongheaded skepticism runs at its peak.
Or in simpler terms: I've learned to invest Foolishly, and made a lot of money in the process.
Morgan Housel, Fool contributor
I've made many. Years ago, I used a considerable amount of margin leverage. There were never any solvency problems, but it took me a while to realize that the interest rate I was paying on the margin was far higher than what I could reasonably -- or even unreasonably -- expect to earn on the assets. That was really dumb. I was blinded by irrational expectations, which I think is the most prevalent and unfortunate mistake in investing.
It also took several burned fingers to learn of the dangers of levered companies. I'm not even talking about ridiculous, Lehman Brothers-style leverage. What looks like a moderate amount of debt built up during a cyclical boom can (and does) crush good companies when the tide goes out. Even American Express (NYSE: AXP), an otherwise fantastic company, had to take emergency measures in 2008 after capital markets froze up and its commercial paper costs soared. I'm hoping this generation turns out like the post-Great Depression generation: terrified of debt and fully aware of the chaos it causes.
John Rosevear, Fool contributor
"'This time it's different' are the four most expensive words in the investing language."
--Sir John Templeton, the voice of hard-won wisdom
The biggest mistake I've ever made was a doozy -- but at least I wasn't alone in making it: Believing that it really was different in 1999. I rode e-commerce infrastructure darlings like Art Technology Group (Nasdaq: ARTG) and Broadvision -- and a few others that have long since gone bust -- to epic highs, and then rode them right down to epic lows. My retirement account balances went from seven figures to just over five in a matter of weeks.
That was an expensive lesson. But I was determined to make it a lesson -- to learn about bubbles, and how to spot them, and how to steer clear of portfolio-trashing pops -- and I have. My portfolio has prospered greatly since the lows of 2001-2002, built -- this time -- on companies with enduring value, not bubble-licious darlings. That's why I don't (usually) regret my youthful investing foolishness -- over the long run, the education it provided should be worth the price.
Those are our biggest mistakes. Share yours (investing or otherwise) in the comments section below. Then check out some stocks we think you should avoid entirely.
