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The Best of the Fool in Newsprint

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.

Hog-Tied
A few years ago I had some stock in Harley-Davidson(NYSE: HDI) held by a major full-service brokerage house. I got a call out of the blue from my broker who suggested I put in an order to sell at $30 per share. It had plateaued at about $26 for some time, so I said OK. Soon after, the stock spiked to $30 1/8 and then dropped back to $25. The sale was triggered and executed, giving me a modest profit. A few days later the company announced it was selling its motor home division and concentrating on making motorcycles. The stock took off and has done nothing but soar ever since, splitting several times, with me left behind. -- Stephen Montgomery, Bakersfield, Calif.

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).

Early Lessons
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(NYSE: KO), Merck, etc. I then received a tax refund that was supposed to pay off my Visa debt, but the market was white-hot and my friends were getting way too rich. I put the entire refund into my brokerage account and margined it out, buying "hot" stocks. As the market melted, I received nine margin calls and had to sell my beloved good stocks to cover the losers. Now I have $500 and a beer to cry in. Of course I still have the Visa balance, too. D'oh! I hope you can print this one, so others will learn from my mistakes. -- Joe Doyle, Palm Beach, Fla.

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.

Counter Intel-igence
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(NYSE: INTC). Though we didn't use its products at my company, I and my co-workers watched and discussed Intel regularly. Still, it never occurred to me to consider investing in Intel, even though I had two or three thousand dollars sitting in the bank in a non-interest-bearing checking account. Had I invested even a thousand dollars in Intel back in those early days, I'd be retired and living in Tahiti now. - Dan Hicks, Byron, Minn.

The Fool responds: That's a great lesson. We should all apply our industry insights to our investing.

Next: Part 4 »


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