For Halloween, I thought it would be fun to hear about your investing horror story. We all brag about how we have made a great move (as I always boast that I bought my first house with the trading profit from a leveraging Manoeuvre!). But we rarely talk about our worst trade, the one that made all our profits vanish within a few months… So I want to know if you are like me; I want to know if you have some skeletons hidden in your investing closet!
I won’t let you down and will start first! Here’s my story… be ready ‘cause this one is pretty scary!
We are at the end of summer 2006. I had been trading since 2003 with great success and especially that year. I’m up 71% with my portfolio and I feel that everything I trade turns into gold. While I’m having great success with my trades, I’m also having great success in real estate. I just successfully sold my house and I’m going to buy another one in November. Everything is going smoothly ;-D
But there is this stock: Northern Shield Resources (CVE: NRN). I’ve been making a few plays on it and making some really good profit. I’m well aware that it’s a speculative mining stock but until then I had made a lot of money on it. I actually bought my shares at $0.38 the first time and the stock went up to $1.40 a few months later. In August, I decided to use part of the down payment for my future house to average up and buy more stock at $1,00 or so. In September, I then had $15,000 invested in NRN with an average price of $0.76. I’m still making profit but holding my position as the company will announce results of their latest prospecting in a few weeks.
I already made plans as to how I will spend my extra profits. I truly believe the stock will rise to a few bucks (maybe $5 if I’m lucky!) and that I will have enough money to not only buy my house, but a BMW and a nice trip down south at the same time… my wife is going to be so proud of me!
So I go for lunch with a few friends on a casual day at work. I always look at my positions when I come back from lunch. Not that it ever changes anything but I like to see where my portfolio is at in the middle of the day ;-). It was a sunny day, lunch was great and we laughed a lot; it was just another great day in my life… until I looked at my computer screen and saw my portfolio.
The stock value went from $1,00 to $0.45 during my lunch hour!
In a heartbeat, I lost about $8,000 (remember, that was my down payment money!). I started suffocating… I had to leave my office and take a walk. Eight Thousand Dollars. This is the only sound ringing in my head…. Until a worse sound crossed my mind like an axe chopping off my head:
“Mike, you’ve got to tell your wife about that….Oh and Mike, you also have to figure how you will still put 20% cash down on your house now that you don’t have it anymore…”
That was one of the most painful experiences I have ever had and definitely the worst investing story I have to tell. In the end, I told my wife with a pitiful face and borrowed the missing amount for my down payment from my parents and repaid them a few months later with my year-end bonus.
I learned a lot from this trade:
#1 I must play with money that I can actually lose and not with cash that needs to be used shortly for something else!
#2 I’ve also learned that investing is not gambling and I should not combine greed with ambition. These are 2 very bad ingredients for an investor’s soup!
#3 When you are lucky enough to make a lot of money in a short time, don’t be greedy, just cash in your profit and find another stock to buy (I should have sold this stock at $1.43 and made it one of my best investment stories instead!)
#4 Finally, investing in mining stocks is just a bad idea. Invest in real businesses generating real profits; hope is cute but will not report any gains on an investment statement
So I hope you appreciated reading how I failed and hope that you never have… but we both know that’s not true 😉 Now it’s your turn; what is your investment horror story?