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5 Lessons Learned in 10 Years

5 Lessons Learned from 10 Years Investing

I’ve made quite a lot of money in the stock market and I attribute it to two things: my willingness to take risks and my ability to hunt for great deals. That said, I’ve made my fair share of mistakes as well.

I wanted to showcase some of my best and worst investments along with the lessons learned so hopefully you don’t have to make the same mistakes I did.  I’ll let my case studies below speak for themselves.

Apple – NASDAQ:AAPL

Purchase Date: June 15th, 2005
Transaction: 114.407 shares @ $38.99
Profit: $55,266.58 (1387%)

Apple was the second investment I ever had.  The first one was a mutual fund my parents bought for me when I was 13.  I was in college and had gotten my first iPod.  It was the second generation iPod and I was blown away.  I’ve always been a tech nerd and at that time my biggest passion in life was programming.

I immediately understood that this was the best piece of electronics and software I had ever used.  As a result I wound up buying the original iBook.

One night I was installing a software update and in my groggy state I closed the lid of the laptop mid update.  I immediately freaked out, the computer was hosed.  As a last ditch effort I put the OS recovery disk in and prayed – I had no backups.

Not only did everything come back but all the windows I had open at the time were opened again.  I was in love.  I put my life savings into the company, a little less than $4,500.  The rest is history.

Lesson 1

I learned a valuable lesson in the following years as I watched Apple’s value shoot into the stratosphere.  Only buy what you truly believe in.  As the saying goes – Bulls make money, Bears make money, Pigs get slaughtered.

Lehman Brothers – (was) NYSE:LEH

Purchase Date: September 11th, 2008
Transaction:  400 shares @ $5.01
Profit: -$2,004 (-100%)

Lehman hired me out of college and placed me in the Technology Development Program (TDP).  In there we learned about the stock market, credit default swaps and other really interesting but complicated investment products.  I had never been around that many brilliant people in my life, I couldn’t imagine the company not taking over the world.  Mind you, this was 2006.

I purchased their stock with my first paycheck and during my time at Lehman I watched the stock price skyrocket.  I bought at $50 a share and it was at $90 a share in no time. Then October 2008 happened and short sellers were pummeling the stock.  Management said everything is fine so I doubled down.  If you like the stock at $50, you love it at $5, right?

Turns out, not right.  Company went bankrupt and I nearly (but didn’t) lose my job.  I learned two major lessons here.

Lesson 2

Don’t gamble with your money and pretend your investing.  I invested quite a lot of money at the end with no real knowledge of how well the company was doing beyond some emails from the CEO.

Lesson 3

Don’t invest in the company you work at.  You’ve already got your sole income locked up into one company, you don’t need your live savings locked up in the same company.  Diversify!

Tesla – NASDAQ:TSLA

Purchase Date: November 27th, 2013
Transaction: 82 shares @ $126.58
Profit: $10,341.84 (99.63%)

Paypal revolutionized money on the internet.  No one even thought things like Paypal could exist back then, it was crazy.  Elon Musk didn’t think it was crazy, he made it a reality.  There were no private space companies, let alone ones that could reuse their rockets (more efficient than NASA) and dock with the space station.  Elon Musk made that happen.

When he founded Tesla, naturally I was interested.  In my eyes, he’s what Steve Jobs would have been if he was an engineer.

I’ve been keeping my eye on Tesla for awhile but the stock was just too expensive (its PE ratio).  Then the fires happened.  Three or four cars caught on fire due to crazy circumstances and everyone flipped out.

The stock went from $175 to $121 in a matter of days.  It didn’t matter that statistically it was 4x more likely for a gas powered card to light on fire than a battery powered one – market prices are largely driven by emotion.  I saw this as my perfect opportunity and put my largest initial investment into a single stock since I’ve started investing – a little over $10k.  In less than four months I’ve basically doubled my money.

Lesson 4

Lesson learned is along the same lines with Apple, invest in what you truly believe in.  Better yet, unlike Apple I waited for a moment of weakness to invest.  If you look at any companies stock over the long term, you’ll notice spikes all over the place.  Usually those spikes coincide with very dramatic news that makes people skittish.  As Warren Buffet says, Be fearful when others are greedy and greedy when others are fearful.

Jacobs Engineering Group – NYSE:JEC

Purchase Date: April 13th, 2007
Transaction: 43 shares @ $48.10
Profit: -$1,627 (-78.66%)

I’m the most ashamed of this one even though I lost more money with Lehman.

At the near peak of the market in 2007 I was investing like crazy and it was basically impossible to pick a stock that didn’t do awesome.  Everything was growing quickly.  I was reading Fortune Magazine and they had a stock recommendation section.  Jacobs Engineering Group was a recommendation because they built a ton of buildings and had billions of dollars in project backlog.

As it turns out, we were in the middle of a huge housing bubble and their entire project backlog would evaporate nearly overnight.  Between that and the over inflated value of housing in general the stock turned out to be at record highs.  So record that even now, 5+ years later they aren’t even close to the valuation they were at back then.

Lesson 5

Do your own research.  People can recommend things, say whatever, it doesn’t matter.  It’s your money and if you care at all for it you should do the research yourself.  Learn from my mistake and don’t be a sucker.  Before you buy anything you should know the company inside and out.

Investing is an Art

There is no magic bullet to the stock market.  Unless you can see the future things can and will go wrong and it will be a challenge to make money.  Why?  Because everyone else is trying to do the same thing you are.

All I can say is do your research, only invest in companies that you truly believe in (love their products) and stay in it for the long term.  There will always be bad news to test your resolve but if the core of the company is good you need to stay the course.

Have you invested in stocks before?  We’d love to hear about your successes and failures in the comments!

Featured Image Photo Credit: “Petaluma and Santa Rosa Railroad Co. Calendar” by Visitor7

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  • Great post, Andrew. I love how transparent you are about both sides of investing. I’ve dabbled with buying individual stocks and have been pretty lucky. My favorite is PSA, Public Storage. It seems that most people just can’t seem to stop buying crap they don’t use but can’t bring themselves to sell so they store it!

    A loser was a container shipping company. It was a recommendation by a friend and since it was cheap, I bought. They went bankrupt. I’ve also learned your Lesson #5!

    Lately though, I would rather just buy index funds. Less detailed research is needed and there’s the likelihood that it will at least match the market. I’m not that good at research so my individual stock picks are more like gambling than investing.

    Cheers!
    Ree

    • PSA is a great idea, listened to a whole podcast on it recently from This American Life called “Storage Unknown”. It’s incredible how many people just leave their stuff in these storage units – most of it being worthless junk.

      I definitely hear you on the index fund buying over individual equities. So far, up until this point we’ve only recommended Betterment as it’s index fund based and sufficiently diversified across various indexes of equities and bonds. Plus, it’s super easy and transparent so there is a low barrier to entry. For 90% of the people out there I believe this is the real solution for them.

      Personally I enjoy the research, I’m a data guy by day so applying what I know from my day job is pretty fun. It is definitely very risky though and I don’t recommend doing it with money you’re not comfortable with losing.

      Thanks for the awesome comment Ree!

      • Yeah, the data on storage unit rentals is ridiculous. I wrote a post last year on why we installed a shed in our yard; I share some doozie data in that post. Here’s the link: http://www.escapingdodge.com/reasons-to-install-a-storage-shed/

        As for nice beginner funds, I’m a huge Vanguard fan (have been for years) and I think their STAR fund is awesome for people who aren’t ready to hit the investing learning curve. A fund of funds (stock and bond mix) at a very low cost. Any thoughts on that choice?

        Cheers,
        Ree

  • Just out of curiosity Andrew: what (if any) hypothetical situations would make you bail on a currently bountiful stock like Apple or Tesla?

    • Interesting – definitely got me thinking there.

      I think I’d be concerned for Tesla if Elon wasn’t there. I’m not sure I’d bail on the stock immediately if he left or died but I would be seriously concerned. I like to buy into a vision which is what landed me with Apple. People are currently flipping out over Tesla because oil is so cheap that it will hurt their sales – probably true. However, in the long term I truly believe it’s the future. I happily ride out short term market dramatics.

      With Apple I was so deeply in love with the company that when Steve got sick I did a bunch of deeper research on their executive team. Tim Cook is a master at supply chains and was the one who enabled Apple to scale so quickly. Their last quarter selling over 74 million iPhones is a testament to that.

      Basically I would need a dramatic change in leadership or strategic vision that I couldn’t resonate with. It’s not unlike marriage. No single person will be perfect but if they’re gold on the inside it’s a hell of a lot easier to sit through the rough times.

      • jb1907

        I still think Tesla is still in the hyped-up mode. I guess we will know for sure in about 5 years.

        • Hindsight’s 20/20, if only we could invest already knowing what will happen in the future.

          • jb1907

            Yep. It is a good thing I can’t buy individual stocks due to the wife’s job. It would probably drive me crazy picking individual stocks. I have bought MSFT, Qualcomm and a few others in the past. My AIG stock from working there went to crap and I do have 5 shares of Boston Beer Company. My micro loan to a friend for a restaurant is now 4 months behind and I will be lucky to get all my money. High risk = High return.