What better way to learn about personal finance and investing than from the experiences of others? That's the idea behind this part of our newspaper feature.
A few years ago I had some stock in Harley-Davidson
The Fool responds: Ouch. As you probably know, Harley-Davidson stock has increased in value more than fivefold over the past five years, averaging about 40% per year. Your broker might have not understood the company's business and its prospects very well. Or perhaps he was after commissions, by having you sell (and presumably buy something else).
This is my first year investing in stocks. I invested in speech-recognition technology company Lernout and Hauspie in March. Today, most of that money is gone. In analyzing my mistakes, I realized that: I took on faith the company's technological leadership and couldn't confirm how it had generated its tremendous revenue growth. I didn't scrutinize the balance sheet thoroughly enough and recognize that accounts receivable were increasing faster than sales. I failed to recognize that many online boosters were making arguments based on emotion. I forgot the importance of having a good management team in place. (L&H's executives have recently stepped down.) I could go on, but the main thing is that I learned a valuable $2,500 lesson. I will more than recoup it throughout the rest of my investing career. I'm a firm believer in the long-term buy-and-hold philosophy. I don't need any of the money in my portfolio for 30 years. -- P. K.
The Fool responds: Bravo. You've gleaned a lot of value from just one mistake.
Margin Call, Mr. Duke
Last spring I had $5,000 in great stocks that I was hoping to keep forever: Coca Cola
The Fool responds: Yikes. Investing on margin (borrowing investing money from your brokerage) is risky. When things don't go your way, you're required to cough up additional cash or to liquidate some holdings. And even when things do go your way, you're paying interest on all you've borrowed. Only experienced investors should invest on margin, and only in moderation.
Fresh out of engineering school in 1972, I toured a computer company's factory and viewed a dozen ladies peering through microscopes while they threaded wires through tiny ferrite beads to make "core memory." Semiconductor memories were just coming onto the market, and as I looked at that room I realized that core memory was on its way out and semiconductor memory was the way to go. At the time, the only company making semiconductor memory for the general market was a tiny outfit in northern California called Intel
The Fool responds: That's a great lesson. We should all apply our industry insights to our investing.
Next: Part 4 »