Tuesday, September 13, 2005

My Dumbest Investment

Any investor, if they have been investing long enough, has made at least one dumb investment. I have made a few, that is for sure.

The one that sticks out in my mine is when I purchased a small forestry micro-cap stock out of Vancouver that I heard a stock analyst talk about on a morning radio show (I can't remember the name of the stock right now). He spoke about the prospects for the stock and how he was
SURE that this stock was going up. He also spoke about relative strength and how this stock was advancing nicely. I was young and naive, so I got to work, checked out the current price of the stock, powered up my discount broker and bought 200 shares.

At that time in my life, I tended to not monitor my portfolio all that often. A couple of weeks later I happened to check my account and to my surprise I saw that my investment that was a
SURE thing was down 75%. I basically had lost most of my initial investment on this stock. I did a little web research and the reason the company had been going up and looking so good was that management was cooking the books. The company was recording revenue that did not exist, basically bilking investors.

I got burned - I bought something based on some "expert" on the radio without doing my own due diligence. I also bought a micro-cap stock and ignored it - even if it was only for 2-weeks. Micro-caps can swing like crazy and constant monitoring them is required. I learned these lessons the hard way.

The thing with dumb investments is that they are not all bad. In fact, they can be very valuable. It is through this dumb investment, and others like it, that I have learned the most about investing from. I am 100% sure that there will be more dumb investments to come in the future (hopefully not too many though) and I look forward to learning from them and adjusting my investment style to become an even more intelligent investor.

4 Comments:

Anonymous Anonymous said...

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9/13/2005 02:28:00 PM  
Blogger Canadian Capitalist said...

My dumb investments cost me many times what my university education costs!

http://canadiancapitalist.blogspot.com/2005/04/my-dumbest-investment.html

9/14/2005 07:41:00 AM  
Blogger Caitlin said...

great post! I think it's important to be reminded that you can make mistakes and still succeed.

I've only invested once in stock, and blew it. not because my choice was so bad, but because I didn't have a strategy and I didnt watch my stock. I bought IOM when Zip and Jaz disks were all the rage. I had missed the big spike when it climbed to 50, but was thinking "buy and hold" but I "bought and ignored". When I was buying my house, I looked up that account and if I had sold three months prior, I would have made a small sum, but I think I broke even (prices were plummeting so I guess it was good I caught it in time)

The lesson it taught me, was to not invest until a) I really had the money to do so and b) I knew what I was doing (at the very least have a sell strategy and watch the price so i can enact it)

I'm working on both A and B and hope to join the fray within a year :)

9/17/2005 08:14:00 AM  
Blogger Madame X said...

My dumbest investment was 50 shares of GM. I bought it because the dividend yield was so high, but it was right before their financial problems suddenly became front page news. It's been down as much as 45% from when I bought, though it's only about -28% right now.

9/19/2005 11:26:00 AM  

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