Sherman, set the wayback machine to the winter of 1999! This was a time when everyone thought they were a financial genius. You couldn’t loose, or so we thought. I was a conservative investor even in those days but a co-worker was talking about a great investment tip he heard from a friend who had heard it from their doctor. That in it self should have been a sign.
My co-worker had heard about a company called Socket (SCKT) and while he wasn’t sure what they did, he was certain that they would do it well and their stock would skyrocket. I looked into the company and I must admit I was not impressed with their financials. They had been in the red for a long time but they did make a needed product. The stock was trading very low at around $1.29 so I bought in.
My co-worker’s friend’s doctor had been correct and the price soon started to rise. It kept going up and I was amazed. I went into work one day and asked for the latest news. I was told it would easily hit $50 so I put in an order to sell at $50.
It never made that mark; it stopped at around $49.50. Can you believe it? It would never see those heights again. Everyday my wife would tell me to sell, everyday I clung to a hope that it would go back up. One day my co-worker said the doctor was putting another $10,000 in because he heard it was going to go to $200. In a couple of days I sold at around $18 and I was so mad. I kept thinking about how I lost almost $3200 and how it had gotten so close to the magic number.
Lessons learned; there are many but here are a few for every investor.
- If you ask a group of random people to pick a number between 1 and 100 they will almost always pick a whole number. That’s being human, it is the way we think but it is not the way the market works. When you decide to sell, sell.
- The only two numbers that count are the price you paid and the price at which you sell, everything else is imaginary.
- Finally, do your homework; a company that is in the red is a questionable investment. I am still working on this one and maybe I haven’t learned my lesson as I now hold a good bit of Fiat (fia) but I am thinking they can pull it off.
I wanted to write this short piece to share my mistakes and encourage others to share theirs; something very few people like to do. Hopefully we can set pride aside and learn from our failings. One last note; SCKT can still be bought today for about the same amount of pocket-change I paid almost 7 years ago. Maybe some day it will be worth $50 a share. I can only hope.