One of my privileges working for The Motley Fool is preparing our weekly syndicated newspaper column. It has five elements, and one, "My Dumbest Investment," features descriptions of our readers' dumbest financial moves, followed by a brief Fool response.
If you ever felt like kicking yourself because of some stupid thing you did with your money, know that you're not alone -- we've all made our share of mistakes. If we're lucky, we learn and we don't repeat them. If we're luckier still, we learn from others' mistakes. Here are a few boneheaded moves:
Slightly slaughtered pig
In 1997 and 1999, I purchased a total of 875 shares of Cisco Systems
(NASDAQ:CSCO)for a total cost of $65,385. I ended up with 6,000 shares after several splits, and sold them in late 2000 for a tidy profit of $345,434. I traded in and out of the stock a few times after that, but got burned in April of 2001 when I sold 9,000 shares for a loss of $161,091. My net gain after I closed out my position in late 2002 was $297,918 which reminds me of the saying, 'Pigs get slaughtered.' -- A.P., Menasha, Wisc.
The Fool responds: You were lucky to not be slaughtered very much. Frequent trading of a stock can be dangerous, as the market's short-term movements are unpredictable. It's best to try and determine whether a stock is undervalued or overvalued, too. Undervalued stocks offer some margin of error. Overvalued stocks might sink to their correct value.
I think this will win the prize. I bought eight heads of cattle (a bull, two cows with calves, and a young steer named Carl) to graze on just six acres of land. I didn't realize how much they need to eat, and they almost starved to death, I found out. Meanwhile, my wife almost got trampled. Finally, I sold them for a huge loss. But the cattle salesman had said it was a good idea, and he made money selling and then re-buying the cattle. Later we can talk about the rabbit farm. I've learned to avoid investing in things I know little about. -- Lloyd Forester, Raymore, Mo.
The Fool responds: Your lesson applies to the stock market, too. Many investors buy into companies and industries they don't understand, sometimes guided by stockbrokers who don't have their best interests in mind. Remember that brokerages make their money when you buy and sell. Some people do well investing in livestock, but most of us are better off sticking with common stock, which we don't have to feed or corral.
Rising from the ashes
What I've done several times now is click over to Yahoo! Finance, look at the big percentage gainers of the day, and try to jump in without knowing jack about the company I was buying. If you're thinking this guy is such a moron, you're right -- because after the first time I did this and got burned, I said I wouldn't do it again and a month later I did it again. I'd jump in on a stock that was already up 75% that day, and as soon as I would buy it, it would plummet. I tried a little day trading and I've paid the price several times. Now I'm a long term investor in solid companies. -- J.Q., Nyack., N.Y.
The Fool responds: Kudos! Day trading is a lot like gambling, and many people have lost their shorts and more doing it. You've become a real investor now, Grasshopper.
So you think you can profit?
I sold Wal-Mart
(NYSE:WMT)in 1996, sold Google (NASDAQ:GOOG)at $320, sold Apple (NASDAQ:AAPL)at $50, kept Advanced Micro Devices (NYSE:AMD)too long, didn't keep Nokia (NYSE:NOK)long enough. … See a pattern here? So far I stink, but I made more than 20% on my own picks in 2006. Not too shabby, I guess. -- Z.O., via email
The Fool responds: Wal-Mart stock has nearly quintupled since 1996, Google stock is well above $500, and Apple was recently above $180 per share. Every investor screws up occasionally, buying the wrong thing or selling the right thing, or holding on too long or not long enough.
You can improve your performance by learning as much as you can about your holdings. Hang on as long as their futures seem bright and their stocks are not significantly overvalued. And sell when the reason you bought is no longer valid.
If you'd like to hone your investing skills, consider test driving, for free, our Motley Fool Inside Value newsletter, which focuses on finding undervalued stocks.