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Popped my cherry today
Old 10-18-2004, 06:28 PM   #1
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Popped my cherry today

After 5 years of investing and even getting through a really awful bear market pretty much unscathed, I finally had my first real melt down today: SGU, down a whopping 80% in one day. Pretty freakin' unbelievable. Good thing this was a rather small (under 3%) part of my portfolio.

I am sure that this will not be the last of the blow-ups I experience, but a post mortem is a valuable way to learn from one's mistakes. So I think this is what I have learned:

- Don't reach for yield too far. One of the reasons I was hanging on to this one is that it was yielding an eye-popping 11% tax deferred. Stupid. It is very important to keep a total return mentality.

- Especially with a leveraged company, run like hell at the first sign of trouble. These clowns cut the distribution on the subordinated partnership shares (SGH) a little while ago. This was a sign of trouble and I knew it. Yet I chose to hang on rather than take the short term pain.

- Pay attention to management. They weren't sounding too coherent on the last quarterly conference call, which is clearly a warning sign.

- Don't fixate on a particular exit price. I was also hanging on because I was hoping that the stock would climb another buck to my entry price and I thought I could get out whole. Nuh-uh. Value is value regardless of what you originally paid for it.

- Don't lose sight of the bigger picture. At first I was really bummed when I saw what had happened. Then I thought about how the money I invested about the same time did overall. I plunked down about 5 times the amount I put into SGU within a 6 month period. even with the blow-up, my total return is in the neighborhood of 35% a year over two years. If you swing for the fences, you will strike out once in a while.

I did a quick review of all my other positions in the light of the melt-down, and I am comfy with them. The only other leveraged position I took some profits on a few months ago because I was uncomfortable with the size of the exposure after a big run. Otherwise, I don't really see any other potential time bombs. I do have some shares of an SGU competitor (SPH), but SPH is far more conservatively capitalized and competently run(hence the lower yield).

Any other lessons to be learned that I missed? Oh yeah, now I have a tax loss to offset oher gains.
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Re: Popped my cherry today
Old 10-18-2004, 07:07 PM   #2
 
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Re: Popped my cherry today

All this sounds like a lot of work to me!

I think I'll be sticking with Index Funds
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Re: Popped my cherry today
Old 10-18-2004, 07:14 PM   #3
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Re: Popped my cherry today

Ahh, but you see, this is my chosen profession/vocation.

The other thing is that I just have been having the hardest time getting comfy with index funds. If you buy the market A) you are stuck with whatever is in the market, including companies I have strong moral objections to (tobacco, weapons, McDonald's, etc.), and B) you are implicitly accepting the valuations that are out there in the market as a whole. In contrast, when I roll my own I can select for more reasonably valued companies and not mortgage my soul (tobacco, etc.). I still have some index funds, but I'm not leaping toward them with open arms, either.
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Re: Popped my cherry today
Old 10-18-2004, 07:23 PM   #4
 
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Re: Popped my cherry today

Quote:
*In contrast, when I roll my own I can select for more reasonably valued companies and not mortgage my soul (tobacco, etc.).
I gave up on that long ago! - I figured that if they were going to blow smoke in my face, at least I could make a few bucks. It is a free country and no one forces you to smoke. *I am in favor in Freedom!
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Re: Popped my cherry today
Old 10-18-2004, 07:26 PM   #5
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Re: Popped my cherry today

Quote:

I gave up on that long ago! - I figured that if they were going to blow smoke in my face, at least I could make a few bucks. It is a free country and no one forces you to smoke. *I am in favor in Freedom!
I am right behind you on freedom, but the sleazy, manipulative tactics used by some companies or the downright evil of their products is not something I can live with. There are lots of things I'll give up to FIRE, but my principles are not on the table. Different strokes, I suppose.
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Re: Popped my cherry today
Old 10-18-2004, 07:27 PM   #6
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Re: Popped my cherry today

You could always go with the Vanguard Calvert Social Index Fund Investor Shares (VCSIX). I'm just guessing they are not invested in "sin" corporations. I actually a Calvert fund for a while way back when. It didn't seem like it did too bad.
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Re: Popped my cherry today
Old 10-18-2004, 10:39 PM   #7
 
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Re: Popped my cherry today

For a minute I was psyched for you, thinking that you quit your job. --JB
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Re: Popped my cherry today
Old 10-19-2004, 01:14 AM   #8
 
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Re: Popped my cherry today

Hey, if you started a fund investing only in "sin"
industries would you have "sinergy"? Just asking.

John Galt
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Re: Popped my cherry today
Old 10-19-2004, 04:48 AM   #9
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Re: Popped my cherry today

Quote:
I'm just guessing they are not invested in "sin" corporations.
Those, and the "ecology sensitive" funds usually perform the worst. Makes me think they should make a Sin fund, cause I bet those would just "own".
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Re: Popped my cherry today
Old 10-19-2004, 05:32 AM   #10
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Re: Popped my cherry today

Quote:
Hey, if you started a fund investing only in "sin"
industries would you have "sinergy"? *Just asking.

John Galt
I've got the perfect fund for you then... http://www.vicefund.com/

It invests in gaming, tobacco, alcohol and Aerospace & Defense industries. Too bad this fund also sins by having a 1.75% expense ratio.

-Jay

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Re: Popped my cherry today
Old 10-19-2004, 06:07 AM   #11
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Re: Popped my cherry today

Since it's biological and incurable - one way to manage the disease of individual stock picking is relatively well documented.

Aka - make your own social fund and manage your own expense ratio.

If you go to to Bernstein's Efficient Frontier website - use his search option to find "The 15 Stock Diversification Myth' - beyond 4 stocks you approach the heel of the curve. He is making a case for indexing - you are free to march to a different drummer.

Being basically a Boglehead (75% balanced index) - my 15% concession to the disease - involves looking at the top ten holdings of funds I admire (usually value) and sometimes buying that stock for the DRIP part of my portfolio.

More than one way to skin a cat. Also still thinking about kayaks.

As for blow ups in individual stocks - Remember the bumper sticker: "Stuff Happens". I've had *way more than one over the last thirty eight years.
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Re: Popped my cherry today
Old 10-19-2004, 07:38 AM   #12
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Re: Popped my cherry today

For a second I thought I had visited the wrong web site!
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"Win" by "not losing"?
Old 10-19-2004, 11:07 AM   #13
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"Win" by "not losing"?

Brewer,

I see SGU is up another 44% today. Does that mean that in a couple more trading days you'll be able to bank some profits?

Sorry to see the statistics overcome hard work. It takes a good investor to critique his trades (or lack thereof). But I guess we can console ourselves with the "knowledge" that we learn more from our losers than our winners.

Still holding Nortel, still eyeing Sun Microsystems, still short KMart & Greenfield Online...
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Re: "Win" by "not losing"?
Old 10-20-2004, 09:03 AM   #14
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Re: "Win" by "not losing"?

Quote:
Brewer,

* * I see SGU is up another 44% today. *Does that mean that in a couple more trading days you'll be able to bank some profits?

* * Sorry to see the statistics overcome hard work. *It takes a good investor to critique his trades (or lack thereof). *But I guess we can console ourselves with the "knowledge" that we learn more from our losers than our winners.

* * Still holding Nortel, still eyeing Sun Microsystems, still short KMart & Greenfield Online...
Actually, I got out ysterday at $6 a share. This puppy ain't coming back, IMO, and $6 is enough that I am willing to take the money and run with no worries about missing out. Including distributions, this is only a ~$7500 loss, so its hardly the end of the world. I'd like to learn as much as I can from it, though.
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Re: Popped my cherry today
Old 10-20-2004, 09:47 AM   #15
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Re: Popped my cherry today

[quote]Ahh, but you see, this is my chosen profession/vocation

Hi Brewer 12345:

Just curious, as your posts wear me out. (But then again, I'm not 30 anymore.)
As your profession/vocation, apparantly you do this full-time, which would explain your intensity.
Always interesting to hear about alternative ways to make a living. (Not everyone can work at the post office).
Regards, Jarhead
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Re: Popped my cherry today
Old 10-20-2004, 11:46 AM   #16
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Re: Popped my cherry today

Quote:
Ahh, but you see, this is my chosen profession/vocation

Hi Brewer 12345:

Just curious, as your posts wear me out. *(But then again, I'm not 30 anymore.)
As your profession/vocation, apparantly you do this full-time, which would explain your intensity.
Always interesting to hear about alternative ways to make a living. *(Not everyone can work at the post office).
Regards, Jarhead
Can't be too specific for obvious reasons, but my day job is a fixed income analyst following financial institutions.
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Re: Popped my cherry today
Old 11-04-2004, 04:02 AM   #17
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Re: Popped my cherry today

Quote:

Can't be too specific for obvious reasons, but my day job is a fixed income analyst following financial institutions.
Hi brewer12345,

I'm jumping in to this tomorrow. My Vanguard guy said to look for the hook, sounds too good to be true. Besides early withdraw, there isnt one. 4% annual for 4 months sounds too good today without risk.


http://hvfcu.org/PM/PM_4Percent.cfm

Am I missing something?

BUM

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Re: Popped my cherry today
Old 11-04-2004, 06:02 AM   #18
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Re: Popped my cherry today

Aside from the fact that you have to actually go into one of their branches to get the rate, I don't see any obvious catches. You would want to commit for the four months, though.
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Re: Popped my cherry today
Old 11-04-2004, 07:18 AM   #19
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Re: Popped my cherry today

Looks like you have to live in one of three counties (or have a relative there) to become a member.
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Re: Popped my cherry today
Old 11-04-2004, 01:07 PM   #20
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Re: Popped my cherry today

The hook seems to me to be the 4 months: since they are only offering this for 4 months, they aren't out much $ and are probably thinking of this as a marketing exercise to get new people into their branches.

Even if you maxed out 100k, you are getting 1/3 of a year of, say, 1% more than you'd get in a short-term corporate fund, (with less risk, of course). So you get a few hundred bucks of extra interest and in 4 months, they are hoping you'll just keep it there and roll it over into a normal CD at normal rates they can make $ on. I don't think they lose $ on you, as they have ways to get 4% on the money you give them, so it works. If they were offering that for a few years as opposed to 4 months, then I'd be more interested. (And I live close enough to go into a branch and open an acct).
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