UnThreaded | Threaded | Whole Thread (3) | Ignore Thread Prev | Next
Author: Mensad Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 3880  
Subject: at least I can't do worse Date: 1/7/1999 8:29 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
In March of 98 I came into some money to invest, on top of my 401K plan. I did a little (VERY little) research on the Web and discovered a medical company called FPA Medical Management (FPAM). Apparently they were growing quickly by acquisitions, going from nothing to a company with market value of $1 billion. The stock had been as high as $40 less than a year ago, but was down to $19. All the experts(?!?)said it was a "buy" or "strong buy", plus those Baby Boomers are all getting older, right? Besides, a health company can't be that dangerous. It looked like an aggressive new company to invest in for years to come, so I bought my shares. The stock price continued to fall, but I was in for the long term.

Not much later the CEO left unexpectedly, and the new CEO postponed reporting earnings until the SEC absolutely would put his feet to the fire. Don't worry, I told myself, there could be a perfectly good reason for all of this, and you're in for the long term. So I held on. The share price did an incredible "down elevator" impersonation.

Finally, the quarterly results are released. FPAM's EPS were projected for 0.32/share - instead they were 0.01/share. Furthermore, this did not include one time losses that dwarfed the meager earnings this quarter, with more "one time losses" projected further down the road. OK, I told myself, now that they have new management, they can turn themselves around, and you're in for the long run. The stock price went from about $10 to $5 that day.

As the stock price continued to fall, I came to the conclusion that I couldn't be any luckier! What a buying opportunity for a long run investor like me! Bravely (blindly) I purchased even more FPAM stock, bringing my average share cost to about $8/share. Brilliant idea! It's a *health care* company, so they can't go under, and 40 years from now I'll be a major shareholder of the company keeping me alive! The price, like a retiree, continued to head south.

A month later, the new CEO announces that FPAM will be filing Chapter 11 bankruptcy, due to taking on too much debt in growing too fast, and losing cost controls due to growing pains. FPAM would announce details of its restructuring plan once it finished negotiating with its banks. Well, I told myself, many companies have come out stronger from Chapter 11, and how bad could it really be? It can't get any worse than this, can it? I'm still in for the long run! The share price dropped below $1.

Finally, in July the restructuring plan is released. New shares will be issued, primarily to the major creditors, but also some to management as an "incentive" to work harder and better than they did for us. The existing shares would be declared null and void. My marathon runner just hit the wall.

In just over four months, during a bull market, I lost 100% of my "long-term" investment. It was an expensive learning experience for me. I learned:

1) Due a full "due dilligence" before you invest dollar one in anything.

2) Risk is real. You can lose a lot, in a hurry.

3) Never say "It can't get any worse...", because the universe sometimes takes such statements as a challenge.
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (3) | Ignore Thread Prev | Next

Announcements

Foolanthropy 2014!
By working with young, first-time moms, Nurse-Family Partnership is able to truly change lives – for generations to come.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Macro Economics

Looking at Currency Ratios
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement