Do you harbor some deep, dark secrets? Things you hope no one ever finds out? Like how you invested half of that windfall from Grandma in Enron stock? Well, when it comes to investing, at least, you shouldn't be so embarrassed. We all make mistakes. Even the best investors have done so.
Permit me to share some blunders with you now. I'll start with one of my own and will follow with some from fellow investors, drawn from our syndicated newspaper feature. (If your local newspaper doesn't carry our feature, consider giving the editor of the business section a jingle and urging him or her to look into it.)
First, my own chowder-headed move:
- In January of 1997, I bought $1,200 worth of stock in ImmuLogic, having heard about it from a friend. All I knew when I invested was that it was developing a vaccine for people allergic to cats. I assumed that would be a big seller, but I failed to think about the facts that the drugs had yet to make it to market. I sold in September of 1998 and received less than $300, my investment having lost some 82% of its value. By 2000, the company had been dissolved.
- R. L. of Vero Beach, Florida, shared this story with us: "In 1955 I won a competition and my prize was one share of stock in General Foods. I had never owned any stock before. I decided to let the small dividend reinvest and after many years, I had a respectable number of shares. From time to time, I bought another share or two. When Philip Morris [now Altria Group
(NYSE:MO)] bought General Foods in 1985, I was given the chance to sell my shares to Philip Morris. Thinking that smoking was on the decline and Philip Morris would go nowhere, I cashed out, netting a nice profit. Everyone knows, though, that Philip Morris was a very successful company. Too bad I sold!"
- T. C. of Pinole, Calif. admitted: "After Avaya
(NYSE:AV)was spun off from Lucent (NYSE:LU), I ended up with three measly shares of it in my IRA. With the depressed price of just a couple of dollars per share, it would have cost more in commissions to liquidate them than the shares were worth. So, I sent $2,000 to my brokerage so that I could buy more shares and eventually make it worthwhile (I hoped) to sell them. Unfortunately, I indicated the wrong year on the contribution and the brokerage sent back my check. Instead of fixing my error and going through with my plans, I spent the money on a landscape job in the backyard. The sprinklers work fine, but Avaya went up more than 700% since then, so they turned out to be very expensive sprinklers."
- M. L. of Tucson shared: "In 1998, I had a few dollars to invest somewhere for five years or more. My wife and I had been doing a small business on eBay
(NASDAQ:EBAY). We thought eBay was great -- really great. We were out of town when the news broke about eBay going public. By the time I found out, the shares had been issued and grown significantly. I didn't buy shares at that time, but should have done so. Alas!"
- T. L. K. regretted, via email, that "I turned $3,230 into $15,500 -- and then $935. Here's how: In 1999, I purchased 100 shares of Bluestone Software for around $31 each. When Bluestone shares hit $135, I told my broker to sell. He said that the shares would go to $150, though, and advised me to hang on. I did, and Bluestone did go to $150. I never sold it, though, instead holding on while it dropped all the way down to $15 and lower. Then Hewlett-Packard
(NYSE:HPQ)bought Bluestone in 2001, and I received 48 shares of Hewlett-Packard worth $1,768, which fell in value to $935 by late 2002." [Note: Hewlett-Packard has since risen more than 200% from its low in 2002.]
The upside to these blockheaded moves is that we can all learn from them. Here are some lessons:
When you buy a stock, it's critical to have a firm idea of why you're doing so. Ask yourself how well you understand exactly how the firm makes its money. What are its competitive strengths and how defensible are they? Is it financially healthy? How much debt and cash does it have? Is it increasing its revenues, earnings, and profit margins? Is it priced attractively enough to buy right now, and when will you sell it?
Think hard enough to see your assumptions, and then question them. T.C. was assuming that Avaya shares wouldn't be great performers. T. C. also assumed that buying more of a stock you didn't have much confidence in would be a good way to recoup losses. It's not. It's much better to try and recoup losses by investing in the best ideas you can find. M. L. and his wife assumed that eBay shares didn't have much more appreciation left in them. The company went public in 1998, but you could have more than doubled your money on it over the past four years.
R. L. assumed that smokers wouldn't generate big profits for Altria, but the company has increased its value more than sixfold over the past 15 years. (It has recently gone through some changes, though. For starters, it's now known as Altria Group. It spun off Kraft Foods
Do your research, or let someone else do it
The bottom line is that we need to take our investing seriously. If we think that we might double our money in a given investment in a few years, we need to weigh that possibility against the value of a new sprinkler system. If we invest in a company, we need to have learned a lot about it.
That's easier said than done, though. If you don't have the time, interest, or skills to study companies carefully, let us help you. Our investing newsletters have an impressive track record and you can try any of them for free. Check out our Motley Fool Inside Value newsletter, for example. Lead analyst Philip Durell studies companies in depth, looking for factors such as strong management, great prospects, compelling valuations, and margin of safety. In about two years, the newsletter's recommendations are up an average of 8%, vs. 6% for the S&P 500. Eleven of them are up more than 20%. A free trial will give you access to all past issues and to lots of other goodies, too, such as interviews with CEOs, reviews of terrific books, and special reports on money-saving tax tips and 10 costly blunders that can threaten your wealth.
Whether you invest on your own or with pointers from us, here's to big profits in your future!
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Kraft is an Income Investor pick, while eBay is aMotley Fool Stock Advisorpick.
Selena Maranjian 's favorite discussion boards include Book Club , The Eclectic Library, Television Banter, and Card & Board Games. She owns shares of eBay. For more about Selena, view her bio and her profile. You might also be interested in these books she has written or co-written: The Motley Fool Money Guide and The Motley Fool Investment Guide for Teens . The Motley Fool is Fools writing for Fools.