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My Worst Investment Decision

By Robert Eberhard – Updated Apr 6, 2017 at 7:30PM

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A bad investment helps a Fool refine his philosophy.

If asked about their greatest investment decision, most investors will talk about a company they bought at a great price and sold later for great profits. They might mention a stock they purchased cheaply and still hold very excitedly. However, it is possible that investors are more passionate about the bad decisions they have made while investing. Often it is buying high and selling low, or selling a stock shortly before it takes off.

My personal investment philosophy was refined after a particularly bad decision I made regarding a stock. I anchored on the share price instead of focusing on the company. This is definitely not the Foolish way to invest, and my experience as outlined in this article shows that finding good companies to purchase is the way to go.

Good time to enter
In early 2009, I finally decided to begin investing in individual stocks. At the time, my previous investment experience was through the purchase of a mutual fund. After the financial meltdown of late 2008, however, many individual stocks caught my attention. One in particular was Ford (NYSE: F). I drove a Ford at the time and figured that, in combination with the cheap price, made it a good place to start my foray into individual stocks.

At the time, the Big Three U.S. automakers were truly suffering. General Motors (NYSE: GM) and Chrysler were on the brink of bankruptcy, and Ford was not far behind. All three had been experiencing a financing crunch as part of the overall financial problems the country was facing. To make matters worse, the rising price of gasoline over the previous few years had made it more difficult to sell larger vehicles, which often came with higher margins than more fuel-efficient small cars. Even foreign auto manufacturers like Toyota (NYSE: TM) and Honda (NYSE: HMC) were feeling the crunch, albeit much less.

Wading into the market
I opened up a small position in Ford when it was trading at $1.92 a share. This would have been a great investment decision, had I been investing Foolishly. However, this article is about a poor decision, and it pains me to say that I got scared not long after and sold everything when the price dropped to $1.78. While my small investment would not have made me wealthy, seeing Ford stock trade around $10 a share the past few weeks helps reinforce that each investment should be made with a concrete plan.

I am still honing my overall investment strategy, but now I look beyond share price when selecting a stock to buy. I like companies with strong executive leadership and little to no debt. I value growth but don't shy away from established companies paying dividends. Finally, I have become a long-term investor, only selling when a dramatic change occurs and not at all based on the current gain or loss.

Always with a plan
As the market continues to swing up and down wildly, there are many bargains out there if you are prepared to buy. Please learn from my mistake; don't buy and sell solely based on share price. Each investment that you make, no matter how small, should be made with a clear goal in mind.

Mistakes are part of investing. Share one of yours -- and the lessons you learned -- in the comments box below to help fellow Fools become better investors. Also, use the Fool's free watchlist to track much more than the price of your favorite stocks. Start by clicking here to add Ford to your personalized watchlist.

Fool contributor Robert Eberhard likes Ford now and wishes he had held onto his holdings, but does not currently own any shares in the companies mentioned here. Follow him on Twitter @GuruEbby. The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of General Motors and Ford Motor. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Ford Motor Stock Quote
Ford Motor
$13.86 (-1.56%) $0.22
Honda Motor Stock Quote
Honda Motor
$24.60 (0.41%) $0.10
Toyota Motor Stock Quote
Toyota Motor
$147.66 (-0.02%) $0.03
General Motors Stock Quote
General Motors
$39.89 (-1.34%) $0.54

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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