Investing Disasters. What's your story?

[craigr]

I had a blog post a while back that discussed my tipping point that got me started on the Permanent Portfolio:

https://web.archive.org/web/20160324133 ... portfolio/

But before this time I was largely an index investor and had been for years. I see the Permanent Portfolio as an indexing approach, with a couple mods to handle some of the weaknesses of stocks/bond indexing a little better.

However before the indexing conversion happened I was led down the primrose path by market timing, stock analysis voodoo, etc. My final straw that led me to indexing was following the Foolish Four strategy in the late-1990s that led to significant losses in the early 2000s. I should also mention the losses were so bad and lagged the markets so much that even the Motley Fool abandoned the strategy.

Our thinking and our expectations for this strategy (and all Dow-based strategies) have changed. Please note that the returns quoted below are based on calendar-year portfolios for the period 1974-1999. Additional research has shown that investors cannot expect such high returns from these strategies in the future.

I was even, for a time in the mid-1990s, in a fund that used high speed computerized trading. Because, being a computer guy, computers must obviously know best on how to do stock trading, right?  ::) These and other mistakes cost me a lot of money in missed opportunity by not just buying simple stock index funds and being done with it.

Well it's been an interesting road and while indexing stocks and bonds was good, I think the Permanent Portfolio gives it an extra edge of performance and safety I enjoy. I think I've reached the end of my road in searching.

So what is your story on your biggest investment flops? Don't be shy, if you have a good story we may drop it in the book so others can learn from it.

[moda0306]

Mine is pretty vanilla.

I bought two rental homes with my dad in 2003 (not horrible timing, but not very good, either), one of which we sold in 2007 (whew) and one in 2011 (at a loss).

We saw the McMansions for what they were, but instead of thinking through to the core of the problem, we thought a couple modest, smaller homes in decent neighborhoods would appreciate.

We misjudged the implications of a housing bubble.

Further, I probably would have laughed at anyone suggesting savings bonds any time back then.  I think anyone who couldn't see the opportunity they provided deserves to eat their humble pie.

[l82start]

not a total disaster but prior to studying up on investing and discovering indexing (followed shortly by discovering the pp) i had the proceeds from a house sale to invest, at that point i had already done well with gold so i decided to put a portion of the house sale money in gold..  unfortunately i got talked into buying numismatic gold, by a sales man with a pitch about better returns and protection against confiscation...  after over two years later and considerable increases in the price of gold i am still in the red with it due to the premiums  :'(

lesson learned - buy bullion  
a small amount of numismatic is interesting to have if you like coins, but the reasons the salesman gave were not entirely true and not good investment advice, i didn't know about the pp at the time but they are also contrary to the PP strategy...

[moda0306]

I've got another one... in 2008 I bought Cash-Value Life Insurance, and probably didn't need it at all due to my youth and my still-unused tax-deferral space.

The guy talked a good game, and it was NW Mutual so I could have done worse.

Oddly enough, the thing guarantees 4.5% in ROI every year, so it wasn't a totall loss... those rates have come down since, but I locked in at 4.5%.  Still, it's a contractual obligation of a payment and it has high expenses.

[AdamA]

I don't even know where to start:

1.  Foolish Four veteran

2.  Fannie Mae during the mortgage crisis.  This was a recommendation from one of The Motley Fool's newsletters...a paid subscription newsletter.  (In fairness, they recommended a sell before the bottom completely fell out, but it was still a pretty big loser for me).

3.  Shark Investing:  http://www.sharkinvesting.com.  Note that his "sharkfolio" is handily beating the S&P.

4. Eliot Wave Analysis.  I was actually paying to become a CEWA (Certified Elliot Wave Analyst).  

5. After reading The Stock Options Income Generator I sold numerous naked puts in a margin account and lost the most money I've ever lost investing.  This was during a stock market rally, after the crash in 2008.  (Again, in fairness, nowhere in the book does the author recommend selling naked puts on margin).    

6.  I've had all kinds of fun with moving averages and other technical indicators.  

7.  Even recently, within my VP, I've made some ridiculous investments.  RIMM puts, National Bank of Greece, puts and calls on SPY and TLT.  I've finally just sold out of all these silly positions and have vowed to stick strictly to the PP from now on.  


There are more, but those are the majors.

[moda0306]

Adam A,

Man you've been around the investing block. 

My cousin did some Motley Fool thing and even after 2008 said she did pretty well.

[AdamA]

Man you've been around the investing block.  

I've been around a block...not sure the right name for it is the investing block, though.

My cousin did some Motley Fool thing and even after 2008 said she did pretty well.

Yeah, they're not as moronic as some of the things I've been through.  They're good stock pickers, but the philosophy is tilted heavily toward stocks, obviously.  

Also, where they used to be more of a do-it-yourself-investing advice website, they now have a bunch of expensive subscription services.  I wouldn't even know how to use their advice at this point.  Most of their newsletters that I've subscribed to just recommend stock after stock after stock.  Am I supposed to buy a new stock every month?  

[travelingheelfan]

1.  Buying a house in July of 2007.  Real Estate always goes up, right 

At the time the real estate in the Washington DC area had already dropped 10-15%.  Little did I know it would drop another 20-25%.  Bought the house for $375,000 and it's worth $280,000 now.

-$95,000

Lesson learned:  Leverage can work both ways.

2.  Subscribing to an online newsletter which traded vertical option spreads and having an autotrade account with ThinkorSwim to trade the recommendations.  The online newsletter no longer exists.

-$75,000 in capital losses.  I'm sure it was a nice chunk of change just for the commissions as well.

Lesson learned:  Don't depend on a newsletter for advice.

The sad thing is that I've known about the Permanent Portfolio since the late 1990's.  When I first heard of it I thought that anyone that wasn't 100% in stocks was nuts. 

[moda0306]

heelfan,

That's brutal.  The numbers included even made it hit home harder.

"Diversification" used to seem like a lazy investor's way out to me.  Now I see it as one of the only free lunches there is.

[MediumTex]

The most vivid memories I have of bad investment experiences are not the bad calls so much as that alternating feeling of excitement (which is basically greed) and desperation (which is basically fear).

Any person toggling between two intense emotional states is unlikely to be making good decisions along the way.

One of the things that the PP teaches you is how good investing ought to feel.  It's neither greed nor fear, but just a proper alignment of personal risk tolerance with your actual investments.  I think that many investors rarely feel this state of calm when it comes to investing.  Even when their calls turn out perfectly, there is often that hectic feeling of "Okay, I've made some money.  What should I do now?  Should I sell a little and let the rest ride?  Should I maybe buy a little more?"

It's nice to be away from all of that mental static.  It's exactly the way it feels wandering around a casino at 4:00 in the morning.  It's not productive and its probably not healthy (though some people do find it exciting).

[Alanw]

I was all over the board after firing my Financial Advisor in early 2009.  My worst investment experiences after that were:

1.  Sometime around the first quarter of 2010 President Obama was becoming more lenient on drilling in the Gulf of Mexico.  In March of 2010 I purchased shares of RIG (transocean).  What could go wrong there.  Less than 30 days later the BP well blew up.  For some strange reason, I held on and the shares returned me a very small profit (about 1 year later).  I ejected when the share price passed my original purchase price.

2.  In the early part of 2011, I decided that alternative energy ETF's might be a good play for some investment dollars.  We all know that ETF's wiil keep you diversified in one sector.  Nuclear power was being touted  as one alternative energy source of the future so I took a position in URA (Uranium ETF) literally two weeks before the earthquake and tsunami in Japan.  I am still holding a small position and have recovered to a loss of just over 50%.

Well that was the last straw and I went 80% into the HBPP. 

Thank you HB, Craig, MT and all the other posters on this forum.  Some sanity has finally returned to my investment life and I am sleeping much better.

[AdamA]

I was all over the board after firing my Financial Advisor in early 2009.  My worst investment experiences after that were:

1.  Sometime around the first quarter of 2010 President Obama was becoming more lenient on drilling in the Gulf of Mexico.  In March of 2010 I purchased shares of RIG (transocean).  What could go wrong there.  Less than 30 days later the BP well blew up.  For some strange reason, I held on and the shares returned me a very small profit (about 1 year later).  I ejected when the share price passed my original purchase price.

2.  In the early part of 2011, I decided that alternative energy ETF's might be a good play for some investment dollars.  We all know that ETF's wiil keep you diversified in one sector.  Nuclear power was being touted  as one alternative energy source of the future so I took a position in URA (Uranium ETF) literally two weeks before the earthquake and tsunami in Japan.  I am still holding a small position and have recovered to a loss of just over 50%.

Well that was the last straw and I went 80% into the HBPP. 

Thank you HB, Craig, MT and all the other posters on this forum.  Some sanity has finally returned to my investment life and I am sleeping much better.

Geez, Alan.  You're the poster boy for black swan events...

[jediclampet]

The most vivid memories I have of bad investment experiences are not the bad calls so much as that alternating feeling of excitement (which is basically greed) and desperation (which is basically fear).

Any person toggling between two intense emotional states is unlikely to be making good decisions along the way.

One of the things that the PP teaches you is how good investing ought to feel.  It's neither greed nor fear, but just a proper alignment of personal risk tolerance with your actual investments.  I think that many investors rarely feel this state of calm when it comes to investing.  Even when their calls turn out perfectly, there is often that hectic feeling of "Okay, I've made some money.  What should I do now?  Should I sell a little and let the rest ride?  Should I maybe buy a little more?"

It's nice to be away from all of that mental static.  It's exactly the way it feels wandering around a casino at 4:00 in the morning.  It's not productive and its probably not healthy (though some people do find it exciting).

Wow, I can identify with that!  Great post!

[rickb]

My wife and I worked for the same company (a blue chip Fortune 500 company) and had 10-year stock options with a 3-year vesting period that 3 years in were worth, on paper, about $430,000 (after tax this would have been about $250,000).  We thought "what kind of idiot cashes 10-year stock options only 3 years in".  Answer: many of the VPs (according to Yahoo Finance insider trading reports, one cashed $25M worth of options and another $10M worth of options literally days before ...).  The stock dropped 25% in a day (bad earnings report).  At that point our options were worth "only" $290,000.  Well, we thought, it will certainly go back up (in the next 7 years).  It dropped again to about half the previous high (options value now $145,000).  Well, it will certainly go up from here.  To make a long and very sad story somewhat shorter we managed to eke out about a $10,000 profit from these options before they went completely under water (and expired, worthless).

Moral:  if any single asset - particularly an asset in any way, shape, or form related to your employer - exceeds 10% of your net worth, sell it down to at most 10%.  The fact that many of the VPs were selling was not made public until much later (and, surprisingly, none of them are in jail), but if you can get timely information about what execs in your company doing with their options, pay attention.  On second thought, never mind.  There's no way you'll get timely information about what execs in your company are doing, and if you ask them at an all hands meeting they'll flat out lie to you.

[AdamA]

My wife and I worked for the same company (a blue chip Fortune 500 company) and had 10-year stock options with a 3-year vesting period that 3 years in were worth, on paper, about $430,000 (after tax this would have been about $250,000).   We thought "what kind of idiot cashes 10-year stock options only 3 years in".  Answer: many of the VPs (according to Yahoo Finance insider trading reports, one cashed $25M worth of options and another $10M worth of options literally days before ...).  The stock dropped 25% in a day (bad earnings report).  At that point our options were worth "only" $290,000.  Well, we thought, it will certainly go back up (in the next 7 years).  It dropped again to about half the previous high (options value now $145,000).  Well, it will certainly go up from here.  To make a long and very sad story somewhat shorter we managed to eke out about a $10,000 profit from these options before they went completely under water (and expired, worthless).

Moral:  if any single asset - particularly an asset in any way, shape, or form related to your employer - exceeds 10% of your net worth, sell it down to at most 10%.  The fact that many of the VPs were selling was not made public until much later (and, surprisingly, none of them are in jail), but if you can get timely information about what execs in your company doing with their options, pay attention.  On second thought, never mind.  There's no way you'll get timely information about what execs in your company are doing, and if you ask them at an all hands meeting they'll flat out lie to you.

Wow...just...wow.

[MediumTex]

rickb,

It sounds like those options didn't turn out to be much of an incentive.

I'll bet you would have been happier if they had never been granted.

I'm picturing a scene from "The Old Man and the Sea" except rather than a giant fish strapped to the side of the old man's boat being eaten by sharks, he has some stock option grants strapped to the boat and they are being eaten by a group of C-suite executives.

[Jake]

I think the big financial disaster that most influenced me was watching what my parents did with their money before I had any money myself. They bought property at the height of the late 1980s boom in the UK, went into negative equity in the early 1990s and sold in the doldrums of the mid 1990s. I was highly motivated to find a different path to that.

[Ad Orientem]

I bought Ken Heebner's CGMFX in June of '08.  Another example of chasing returns that went bad.  I still cringe when I think of how badly I got scalped.

[Alanw]

I bought Ken Heebner's CGMFX in June of '08.  Another example of chasing returns that went bad.  I still cringe when I think of how badly I got scalped.

I also purchased CGMFX in 2006 and rode it up 80% in 2007, then rode it back down in 2008.  The mechanical bull at Gillys would have been a much more fun ride.  The investment education process can be quite taxing and humbling.

[craigr]

Thanks for the stories everyone.  We all have them!

[WildAboutHarry]

Pets.com

[smurff]

Yukos Oil.  Then Putin put Khodorkovsky in prison, and that was the end of that.

[Reido]

I made a ton in the 97-early 2000 period investing in high multiple tech stocks...  this was OBVIOUSLY the best way to invest for the long term - everyone knew that!!

...And then in late 2001 I got a joke email from a friend about buying beer being a better investment than tech stocks since at least with beer you'd have gotten a 5-cent return on each $1 you payed per bottle...

That hurt... and since then I had looked for a better solution to the investment problem...  I was fortunate enough to find Craigr's site in 2009 and have been pleased ever since!