Best and worst investment decisions

[Nords]

I know scores of people in Silly-con Valley who held onto company stock or tech stocks as they imploded -- wonder how common it is to hold on too long vs choose poorly in the first place.  Any other war stories of that kind?

TH was regularly castigated for exercising his company's stock options as soon as they were awarded (and missing out while the stock was climbing to the stratosphere).

At one point a friend had over $7M of unexercised options. When he pointed out that this would fund a great retirement, she responded "Yes, but I want to travel!"

She held on to the options. The company stock declined 80%. She's still working...

I think choosing poorly & holding too long are two of the most common mistakes made by any investor.

 

[haha]

I think choosing poorly & holding too long are two of the most common mistakes made by any investor.

Are you sure about this?

 

[SteveR]

Caroline,

Your wrote:

Fascinating thread -- great learning opportunity.

I have a follow-up question, though. A lot of worst investments involve getting INTO something that didn't do well. I'm also interested in the decision, above, and others like it, not to get OUT OF something fast enough.

I know scores of people in Silly-con Valley who held onto company stock or tech stocks as they imploded -- wonder how common it is to hold on too long vs choose poorly in the first place. Any other war stories of that kind?

In my case the company had a very good history of slow increases with some minor setbacks but continued to increase value over a 2-2 year period and then did a 2:1 split. The stock was on an uphill run and no one suspected any issues. FDA nailed them with a Consent Decree and whamo! the stock lost 30% overnight. I was out of town on business and did not have a way of knowing what happened until it was too late. It was only by my foresight that I had moved over 70 percent of my wife's 4o1k out of company stock (she had been 100% company stock up to that point) We salvaged what we could but we still took a beating on the company stuff and I waited too long on the S&P fund before I moved it too. Overall, I lost over 30% of our combined retirement and it has taken 4 years to get back to where we were back then. That is the major reason I am still working; otherwise I would be ER right now.

 

[wabmester]

Fascinating thread -- great learning opportunity. 

I have a follow-up question, though.  A lot of worst investments involve getting INTO something that didn't do well.  I'm also interested in the decision, above, and others like it, not to get OUT OF something fast enough.

I know scores of people in Silly-con Valley who held onto company stock or tech stocks as they imploded -- wonder how common it is to hold on too long vs choose poorly in the first place.  Any other war stories of that kind?

Hoo boy.   I know one guy who was worth around $100M at one point, exercised his options, held his stock, borrowed against his shares, bought expensive toys, and you'll never guess what happened after that.   OK, you probably guessed -- stock tanked, guy owed the IRS $20M on the option exercise, he lost everything, and still has a payment plan with the IRS.

But this (and most of the others) are simply risky bets that didn't pay off.    You can reduce getting burned by this type of risk simply through diversification.

I like to think of it in terms of simple probabilities.   What are your odds of buying the right stock at the right time and selling at the right time?    Those are three independent choices, and you have to get all three right.    Figure 1 in 10 for picking a stock with LOTS of potential.    And 1 in 10 for buying it while it's cheap.    And 1 in 10 for selling it near the top.    That's a 1 in 1000 bet.   I don't like those odds.

 

[Mr._johngalt]

Are you sure about this?

I can accept the "choosing poorly" part.

JG

 

[poyet]

Yes this is a good thread. It is unfortunate though that people do not fill in properly their "profile" so that at least clicking on their pseudo would inform about how old they are as this is a key factor in the way they think relative to money management / investment, etc. Ladies have an excuse though..., but we miss often information about the profiles of the posters.

Back to worst and best. We've had a bit of a mix in the description of what people did as some looked like long term investors (with wrong picks - even Buffet did) and others were trying to do some timing as well which is closer to trading. Trading and investing have nothing to do in common.

I talk a bit of trading @ http://tradingautomation.blogspot.com/ but while trading you know you're gambling trying to put all odds with you (clear open / close rules), good money management, stops (never accepting to lose more than X %), never having more than Y% per line, etc.. But this is sophisticated gambling not investing. A trading portfolio should be less than say max15% of an individual total net worth.

The question about holding on a losing horse is more of a trading question (initial stop loss not thought of !) than of an investing type of behavior. The investor will diversify, know why he's in (fundamental analysis, knows the boss, knows the products, whatever), and let it unfold (eventually to zero). If he's good at investing (not trading) in companies (in stocks) he'll have a limited number of burns for a vast majority of companies making it. The question though is for the average man, why not invest in ETFs following indexes (SPY, QQQQ) or low fees funds ? instead of trying to chose companies ? and we're back to Greaney's site and thoughtful advices.

One more point, Real Estate - especially in Greaney's site - is too often dismissed as not adequate or not considered for whatever reason. Funny to observe than many of your best investments have been in RE (whatever kind of) and that very few of you are attracted by commercial RE (where I made my money).

As I said my biggest blow was being too leveraged on a bear market with huge short positions and not weathering a pull-back which you can hardly see three years later on the chart ! Trading has that beauty that you can also loose big buck being entirely right on the target.

Patrice.

 

[Tadpole]

Age 56.

Worst - After years of neglecting retirement accounts, let my husband talk me into a financial adviser.

Best - Took investments over as a personal dictator (with husband's trust and blessing).

It is a pity that someone as novice in investment as myself could manage their investment accounts better than those professing to be experts.  Lessons learned from experience with financial advisers seems to always be negative. Has anyone a good experience to share?

 

[Mr._johngalt]

Hello Patrice.  I came to commercial real estate late in life and
then  kind of by accident.  Before that it was apartments and SFHs.
Anyway, I too did quite well in commercial.  I kind of wish
I had semiretired into RE investment in 1993.  Never occurred
to me.  Anyway, it worked out okay as I am happy now just loafing.

JG

 

[Mr._johngalt]

Age 56.

Worst - After years of neglecting retirement accounts, let my husband talk me into a financial adviser.

Best - Took investments over as a personal dictator (with husband's trust and blessing).

It is a pity that someone as novice in investment as myself could manage their investment accounts better than those professing to be experts.  Lessons learned from experience with financial advisers seems to always be negative. Has anyone a good experience to share?

I have no "good experiences". All negative. I dropped the idea like a
a hot rock. It was pretty easy for me as I intuitively think I can do it
better by myself.

JG

 

[maddythebeagle]

Best Investment: My own education including learning on this site and making my own decisions

I don’t consider anything to be a “bad investment” since you learn from even the dumb ones (actually I learn more from those).

 

[unclemick]

Heh, heh, heh.

1. The tuition fee - 1966 to now - aka worst investment decisions vs 'theoretical cost of a financial advisor' over the same period.' I have no idea which cost more?. Never heard the term in 1966. I actually listened to my Dean Witter broker in 1966 - and made some money - until he moved.

2. Like the baby sitter, your favorite bartender, and your own personal shrink - financial advisors have a place in this wide world - BUT - costs very widely.

Anyone notice the tv ads - that play on this close 'personal relationship' aspect to make you feel all smarmy and comfy.

eh?

 

[poyet]

John,

Good to see you had some success in commercial RE (CRE) as well. The US CRE market (which I do not know apart from the NNN prop dedicated sites on the web) is so large and so different for the various states that it is certainly difficult and uncertain to embark on some deals for a foreigner, though I'd like to make a start in the future.

What does SFHs mean ?

Patrice.

 

[maddythebeagle]

I suspect that there is a case for financial planners and that not everyone is going to want to do it themselves, but the ones that would be good are probably the "types" on this board, but they are FIRE and dont want to be bothered to work, so it is a conundrum. It's like Warren Buffet, why would he bother to write a book?

 

[TargaDave]

Epilog to my original post: After the bust the Telcom company started issuing regular options at those basement prices to keep everyone from jumping ship. Stock recovered a bit and she cashed out another $100k along with making it to the 10 yr pension level before the plant she worked at shut down (due to Chinese competition).

The $450k net gain mostly makes up for the NYC suburb house we sold in 93 when we moved to our current non-bubble location. No big time RE increases here, but it is cheap and the schools are great . I think all this stuff is a big wash in the end. No substitute for good ole saving and compounding.

 

[grumpy]

I like to think of it in terms of simple probabilities. What are your odds of buying the right stock at the right time and selling at the right time? Those are three independent choices, and you have to get all three right.

That's why I built a portfolio (6 figure) of dividend paying stocks. These are blue chip companies. I waited to buy until the prices dipped and have simply held them with dividends reinvested (with no commission charges at Buy and Hold Securities). This eliminates one of the decisions (selling at the right time). My dividend yields are high enough (> 4%) that I would only consider selling if the dividend looks like it might be cut. I get nearly the safety of a Treasury bond with low volitility and upside potential.

I find it alot easier to hit singles than home runs and I don't strike out as much.

Grumpy

 

[treypar]

I had a retired friend of mine that had his entire 401k in his comapny stock. It was worth about 1 million and he was going to sell when it got to 1.5 million. Intead it when down to 500,000 then 200,000 and he never sold thinking that it would rebound. He is 65 now and he had to go back to work.

 

[Ed_The_Gypsy]

I have done only two really smart things in my life:
1) got married,
2) started saving early on as much as DW would let me get away with in the pre-401K tax-sheltered savings plan of the time. There is no substitute for starting early.

Worst investment decision? Many unbelievable lost opportunities (e.g., could have gone to work for Intel out of school, etc.), but I don't count them.

I have lost money on a few stinkers, but never very much due to being paranoid about making large bets on any one thing.

Maybe could generalize: Worst move: not investing more, earlier.

El Gitano

 

[kz]

Worst--waiting til my late 30s to get started in investing.

Best--staying put in home we built 19 yrs ago
investing in energy stocks 3 yrs ago

 

[Nords]

Are you sure about this?

Humor: Are you accusing me of choosing poorly? I'll hold on to these opinions forever!

Seriously: Well, yeah, based on personal experience those are the two I have to work hardest to avoid. They usually involve admitting some personal degree of responsibility and mistakes. What are the alternatives?

 

[Nords]

I think all this stuff is a big wash in the end. No substitute for good ole saving and compounding.

If you can't save and if you're not in the market long enough to compound it, then it doesn't matter how brilliant you are. We've always been great savers. I don't think I care to emulate Jesse Livermore.

Lessons learned from experience with financial advisers seems to always be negative. Has anyone a good experience to share?

No.

Well, maybe. I surveyed a half-dozen here on Oahu and most of them were bad right from the initial phone call. (One of them actually told me that he preferred customers who didn't understand investing because then he didn't have to argue with them about the right thing to do.) But one of the advisors actually got so wrapped up in the discussion that he said "Instead of trying to find an advisor who uses a Monte Carlo calculator to model all of this, why don't you just see if you can withdraw 3-4% of the portfolio every year and live off that?"

I haven't felt the need to talk to a financial advisor since then...

 

[Jarhead*]

If you can't save and if you're not in the market long enough to compound it, then it doesn't matter how brilliant you are.  We've always been great savers.  I don't think I care to emulate Jesse Livermore.
No.

Well, maybe.  I surveyed a half-dozen here on Oahu and most of them were bad right from the initial phone call.  (One of them actually told me that he preferred customers who didn't understand investing because then he didn't have to argue with them about the right thing to do.)  But one of the advisors actually got so wrapped up in the discussion that he said "Instead of trying to find an advisor who uses a Monte Carlo calculator to model all of this, why don't you just see if you can withdraw 3-4% of the portfolio every year and live off that?"

I haven't felt the need to talk to a financial advisor since then...

Nords: Did any of the advisor's break down and "sob" during your conversation with them?

Would be high entertainment value to tap into those conversations.

 

[Nords]

Nords:  Did any of the advisor's break down and "sob" during your conversation with them?

Would be high entertainment value to tap into those conversations.

No, but they were so desperate to get off the phone that they actually started telling the truth.

I think they quickly delete those recorded conversations to avoid being embarrassed by the subpoena/discovery process...

Hey, you've been retired for a while, maybe your spouse uses one of these scripts too: "Hello, you're about to talk with my husband. I feel obligated to tell you that he's a retired engineer, he has a restless analytical mind, and he has a lot of time on his hands. He's not as experienced or as widely informed as you, but he's much more of an expert on our situation than you ever will be. You can try to change his mind but he'll have a lot of questions and it might take the rest of your shift. So use the bathroom, get a fresh cup of coffee, order lunch at your desk, and remember-- the quicker you do as he asks, the sooner this will be over."

 

[Jarhead*]

No, but they were so desperate to get off the phone that they actually started telling the truth.

I think they quickly delete those recorded conversations to avoid being embarrassed by the subpoena/discovery process...

Hey, you've been retired for a while, maybe your spouse uses one of these scripts too:  "Hello, you're about to talk with my husband.  I feel obligated to tell you that he's a retired engineer, he has a restless analytical mind, and he has a lot of time on his hands.  He's not as experienced or as widely informed as you, but he's much more of an expert on our situation than you ever will be.  You can try to change his mind but he'll have a lot of questions and it might take the rest of your shift.  So use the bathroom, get a fresh cup of coffee, order lunch at your desk, and remember-- the quicker you do as he asks, the sooner this will be over."

Nords: That would probably work, but neither my wife or I have that much extra expendable energy. We screen all calls, and that way we don't waste our time, or the time of the poor guy on the other end.

 

[greg]

Worst Decision(s): Of course, Enron and Dynegy. But I learned with those events how not to catch a falling knife. Don't catch it with your money. Just let the knife slice your fingers off; then you can't use your on-line broker until everything is repaired or healed.

Another, slower mistake, was selling KMR and EEQ. I bought them when they were paying a 7%+ and 9%++ dividend respectively (tax free until sold, in a taxable account--they pay the dividends in shares). I took my profits too early, got greedy and worried. I'll buy them again on the BIG dip--and hold. That compounding is wonderful stuff. I can't even watch them any more. Easy double in 4 years--pffft.

Best Decision: Buying Rydex short funds. I'm now down 10%+. But I feel partially protected. They provide comfort. And, if the market drops 50%, I'll be there ready and waiting with my hands out, using other people's money to prevent the cuts.

--Greg

 

[LEX]

Worst: Bought a Mcmansion one year before my ex-wife wiped me out in the divorce. say, do you think she timed the deal?

Best: Took company options as bonus instead of salary when company was on hard times, sold them five years later once the situation turned around, and got to portfolio critical mass on the proceeds. I figured lighting was not going to strike twice, that I was lucky and not smart, and bought boring vanguard balanced funds to enjoy them for their conservative, low risk asset preservation. (Wellesly, Wellington, balanced Index...all Admirals on their own yacht sailing through the sea of investment pitfalls I most likely would have made but for one or two good breaks 8)).