I Was Young and I Needed The Money…

on 2019.03.27

A sure thing?

I knew nothing about handling money. I knew nearly nothing about life, to be honest. However, the year was 1998 and I was in my mid-20s with some cash on hand. Internet stocks were being talked about everywhere. If it wasn’t Yahoo, it was AOL and eBay. Then I had a chance meeting with a friend who happened to be the chief technology officer of a small startup, development-stage company. He said, “Of course I can’t make any promises, but it’s a pretty sure thing.” So I took all of the money I had on hand and put it into this company, M – phase technologies. They were playing in the DSL space alongside Covad communications and DSLnet. Except they didn’t even have a product out yet. The product was not just a DSL internet offering, it was a TV offering over DSL. And they were the only player in the TV over DSL space. It was a lock. Hence my naiveté.

This is easy money!!

I didn’t even have a broker, nor did I know anything about how to buy a stock at all. Yet, I was determined to get into the game. So I called the person who ran my company‘s 401(k) program to ask him about buying a single stock. It sounds ridiculous even as I type this. But, this was before everyone had online brokerages. I actually made a phone call and paid a commission of an eighth. 1400 shares. Roughly 6000 dollars. That was a lot. A ton. A buttload of money to be dumping on a stock that doesn’t even have a product yet and even tells you they are a “development stage “company. Nevertheless, I was hopeful. And, surprisingly, I was right. Our $6000 was worth around $10,000 in just a few days. My reaction should have been a cautious, “This is too easy. Sell it”. Instead, my reaction was, “This is too easy!! Let’s hold for the big money!“

Riding that rocketship to the moon, baby!

Over the next year and a half, the value went to $28,000. And that was where my rightness came to a screeching halt. At this point, it was early 2000. And everything rolled over. Quickly. And yet, I held. This was just a dip, maybe I should buy more. No, I don’t have any extra money. I’ll just hold. This thing is going to go to 70. I can feel it! Well, it eventually did go to 70… Cents! Fortunately, we got out before that, but not without a loss on our original investment.

Hey! I gotta tip for ya!

After this episode, I decided that I enjoyed the financial markets, but needed to understand some things. So, I took the time to think through my primary trouble and learn about how to better approach investing my money. First, I had purchased this stock (OTC) based on a tip I got from a friend. Even though the tip actually turned out to be correct, I have never bought solely based on a tip since then. There was no true intrinsic value to this stock. They didn’t even have a product to sell.

Another problem (perhaps the biggest problem) was not knowing the market I was in. The late 90s was a bull market that drove stock prices of even worthless companies through the roof. If I were to repeat the same trade today, I would have exited when the price went up so drastically after a few days. In that market, a lot of people made a lot of money in stocks like MPhase using the greater fool theory, but in the end, most of it was lost and the real money was to be made after the crash when the quality companies were thrown out with the bathwater.

Investing or trading?

Which brings me to my other big issue…I was an investor holding a traders stock. I’ve made this mistake a few times over the past 20 years. The allure of becoming a trader is strong, but the three times I’ve given it a shot have all ended the same way. I lost a bunch of money. Not sure why this is, but when it’s time for rules-based trading, my personality just doesn’t square up with it. Some people (like my friends here at TT) do well in the trader’s arena. My personal record says I don’t. So I prefer to wait for the long-term opportunity. At the very least, I wait for the long swing opportunity.

So, after this first experience, I bought some solid companies for the long term. My next few trades I’m still holding now. One of them is 3M, which has done quite well over the years, paying me a steady dividend and giving me some capital gains to boot.

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