Monday, September 28, 1998

A Fool's Confession
by [email protected]

I have been investing with the Fools now for about three or four years. I like the Fools. I even like the hats. They back up what they say with hard data most of the time and, when they don't have the data, they say so. I like their approach to investing and I like what following their example, to the extent that I have, has done to my bottom line. Having said all this, I must tell you that I recently strayed from the Foolish way. I am here to confess and repent.

About a month ago I was the recipient of a "hot tip," so to speak. No, I do not usually consider myself to be an idiot. I've read all about how, unless you're an insider, any "tip" you get is extremely unlikely to be even lukewarm let alone news to anybody. I know. But it sounded so good! A relatively new company with a new product and almost no competition seemingly backed by serious folks out to make a buck. The stock was selling for about $6. It had been at about $15, though it had also been at $1 during the year. "You know how the market has been," he said. My fount of wisdom informed me that he had bought it at $7 and he fully expected it to get back into the teens by the end of the year, with an upside potential of 60 or more! He had this on a very good authority that he trusted. (This later turned out to be a broker.) I knew this was not long-term investing, but I declined to resist. Just think of the potential!

Well, throwing caution and reason to the wind, I bought my stake at 6 3/8. I was just about to start a second Beating The Dow variation portfolio, the reasoning behind which I knew, but decided to "invest" about 20% of that money in this hot stock about which I had very little reliable information. You can't win big if you don't take some chances right? If you've even browsed Fooldom, you know better... and I should have.

The stock, of course, dropped to below $6 almost immediately. It fluctuated for weeks but never back to my $6 3/8. As I watched this stock day after day, and finally did some sound research into its fundamentals and financials, it dawned on me what I'd done. The details of how exactly reality turned out to differ from fantasy don't really matter. Suffice it to say that they did. I might as well have placed my money on 26 black and spun the wheel. I had gambled, not invested, my money.

It was keeping me up nights and for good reason. One, I don't like to gamble; two, I had no sound reasoning to support my decision to buy that stock; and three, I had put what was for me a large amount of money at risk and there was no way I could ever explain the loss to my wife without convincing her that yes, as she suspected, I really was just playing around with our hard earned money and should not be left alone lest I hurt myself! I gambled with savings money, a grievous sin in my personal financial book of No-Nos. I got caught up in the excitement, the promises.

As I write this, that stock is still under $7 and on some days under $6. I got lucky and managed to sell at $6 1/2 and a minuscule profit. I have now invested the money Foolishly rather than foolishly and it is doing much better. So am I.

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