UnThreaded | Threaded | Whole Thread (1) | Ignore Thread Prev | Next
Author: Joelshann One star, 50 posts CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 3874  
Subject: When the Good News is Worse than the Bad Date: 7/27/2006 11:44 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 39
The date was August 13, 2002 and it had not been a good two years.

Background – I inherited my broker through marriage and—in three years—he had done absolutely nothing to manage our account since I began paying attention to the $10,000 we had invested with Schwab. Why? Because he mostly dealt with $10,000,000 accounts. Our gnat didn't have a chance in a million of showing up on his radar.

Three Strikes – I called the guy, and in a ten minute conversation, he had three strikes…and took them all. First, why was half our account in an under performing mutual fund? His response: yea, I think you probably should get out of that one. (Now he tells me). Second, why weren't any of our dividends set to automatically reinvest? His response: that makes taxes harder for some people when it comes time to sell. (But of course, he reinvests his dividends). Third, what recommendations did he have to improve our returns? His response: the stock market goes up and down and it just isn't predictable. (Gee, that's original).

Flying Solo – I pulled all our money out of all the funds and rolled the cash into our money market. I began doing research on the internet on stocks, funds, etc. and I came across this site called “The Motley Fool.” I'd never heard of it before, but I began reading articles about various stocks and—as an intuitive person—much of it made sense. I'm Austrian in my economic thinking much more than I am Keynesian. Believing that I'd rather see dividends that come to me for reinvestment than pray for stock appreciation, I bought in to half-a-dozen dividend paying stocks…and one non-dividend paying stock.

The Good News – I can't find the original Motley Fool article but it recommended ValueClick Inc. (Nasdaq: VCLK) as a great example of an under-appreciated (non-dividend paying) growth stock. I knew little about it, but decided to drop $105.00 (less than 1% of my portfolio value) for 39.9225 shares. For those of us slow on math, that comes to $2.63 per share. Read carefully, because the key line above is that “I knew little about it.” I bought, but didn't know why.

The Problem – When you buy a stock, you need to know why. We've all heard that before, but the fact is we don't always practice what we…preach? In this day and age, we play at marriage, and we play at jobs, and we play at religion, and we play at the stock market, saying, “Let's give it…a try, and see what happens.” Folks: that's little-f foolish. But I was new to the game, and I played it like a teenage boy plays with love. I thought, “It's only $100 bucks. What's the risk?” But there's ignorance and then there's…ignorance. You could call me ignorant.

The Bad News – ValueClick Inc. sits at $14.13 today, with a 52-week high of $20.98. Quick math: 39.9225 times $20.98 is $837.57, or 800% increase in my original investment. But let's say I didn't time the market right and held out till today: 39.9225 times $14.13 is $564 and change, or a five-bagger if you will. Not bad right? Right? Can I get an Amen or something? I only wish it were true, for you see I sold out my 39.9225 shares at $2.35 a share on April 2, 2003 (about 8 months after buying) and at a loss of about 2% my original investment.

The Answer – When you don't know why you buy a stock, you certainly don't know why to keep holding it when it's doing nothing or, worse…when it is going down. Ignorance robbed me of a 5-8 bagger, and I've never forgotten it. In fact, in my “Current holdings” portfolio at Yahoo! I keep VCLK listed, despite the fact I haven't owned it in years. It sits there as a reminder that it's easy to be foolish, impetuous, and ignorant, especially when the market is down or flat-lined; while it's hard to be wise, patient, and informed. Friends, learn from my mistakes: know why you buy and then don't sell until that fact changes.

The date is July 27, 2006 and it hasn't been a good year. Most of my stocks are down for the trailing 12 months…but I haven't sold. In fact, quite the opposite: I've added to many of those holdings with increased share purchases. Imbalance in my portfolio forced a sale of some Netflix holdings nearly six months ago. The continual decline of the stock has allowed me to buy back in a reasonable shares.

My most dumbest investment by far was one of my best. The stupidity was in me and not the stock. Sure, I'm in the negative on a lot of stocks, but I know why I bought them and until that changes, I'll know not to sell. Thanks VCLK for the lessons you taught me. Thanks Fool for letting me journey along in your stock evaluations.
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (1) | Ignore Thread Prev | Next

Announcements

Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Post of the Day:
Macro Economics

Implications of the Ballad of Ted Plotz
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
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.
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