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…”
Ugh!
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?
In 1999 I had read a couple of books (‘Boom Bust & Echo’, and ‘The Roaring 2000s’). Based on these two books and on a previous trip up to Mt Tremblant we decided to buy a condo up there in La Tour des Voyageurs. In terms of being a landowner it has worked out well in that I don’t have to deal with tenants – my condo is rented out like a hotel room and taken care of by the Tremblant Resort Association. For this service they keep half of the profits.
The idea was to buy the condo, hold it for six or seven years and then sell it at a nice profit. Meanwhile, every year we have had to pay out of our pockets to keep up with all of the payments (condo fees, mortgage payments, home insurance, municipal and school taxes). Here we are twelve years later and we’ve listed the property for 20K less than what we paid in 1999 and it has been on the market for eighteen months and still not a single offer has come in.
As a passive investment idea, it seemed really good at the time, however, because Intrawest continued to develop the resort area and continue to expand, it diluted the market there. Now there are too many condo units so the price is really dropping. The way the economy is going it is likely that prices won’t go back up again any time soon.
OK, I will bite. I am new and reached the blog through searching for some tax information about dividends.
My biggest horror story was COCO. This blew up spectacularly in my face, but it was a slow-motion train wreck. Early in 2010, it appeared to be a nice stock. I bought 900 shares, at about $13 each, and then I sold some call options to force myself to sell at $15. The options were to expire in May or June 2010, and my overall position was small (compared to my portfolio). The stock ran up to $17 or $18, and so I felt quite confident that I made the right call. In fact, I was considering closing the entire position since I had realized about 80% of my potential gain, but decided to just let it run its course.
Big mistake.
The government started hearings into the entire education sector, and big players started shorting the entire sector. The stock collapsed from $17 to about $9 in a matter of weeks, resulting in an overall loss of about $3000 on the position.
Although a reasonable loss, I was still up on the year, and instead of pulling out, decided to bet on a rebound. As the stock slid to $8, I bought 50 $10 calls expiring a month away, for about $1500. The idea was to sell on a rebound towards $10, and exit the options position, and keep the stock.
That backfired rapidly as the stock kept plummeting. $8 was the high of the month, as the stock rapidly fell to the $5 range. I kept buying the stock on the way down, and at one point accumulated 1700 shares.
Finally, after stabilizing around the $5 mark, I sold part of my position in the December of 2010, to cancel out all my trading profits last year and in fact had a net capital loss on my taxes.
I sold out the rest of the position earlier this year, and have the rest of the loss this year, to match up against other profitable trades.
This one position was singly responsible for wiping out trading profits last year. Thankfully, I have recovered nicely with other positions and have survived to tell the tale. It was an expensive lesson, and I have dialed down speculative trading as a result. Most of my current positions are bigger cap stocks and LEAPS and short option positions on these have helped in hedging downside risk.
yellow pages .sold on stop loss order and bought back a few weeks later , second guessing myself.
big mistake
A true All Hallows Eve Horror story
Just remember our finance minister’s trick and no treat on Oct 31st, 2006. Many an elder got to work a few extra years thnaks to him (and Harper).
Hmm!! Wonder if Tony Clement studied under him?
A true honest to God All Hallows Eve horror story.
Oct 31st, 2006 Flaherty screws many a pensioner with the trust fund about face. How many people had banked on Harper’s word that the Conservatives would not touch trust funds.
If you take one thing any from this. NEVER TRUST A POLITICIAN. At least until the money is in the bank.
Hmm! Wonder if Tony Clement studied under Flaherty and put his money (or ours) in the bank? Seems that way. But then he probably had an inside tract.
One word … Nortel
Enough said.
Ouch! Oh man, I felt my heart sink reading your story.
So far my worst investment move has been investing in COMV — I’ve been dollar cost averaging down from about $18/share to $1.65 a share today. Now, I keep thinking what goes down must go back up — but that’s not always the case in the stock market. So far, of $6k investment I’ve “lost” $4100. I’m wondering whether I should sell at this point… I could get out and have $1900 to put elsewhere, but it still seems like $1.65 a share is a “bargain” and that price makes me want to buy more. I’m probably just buying into a bankruptcy over the long term. What do you think? The good news is my other stocks are, on the whole, performing well or not too bad, with a 8.6% growth since I started investing 5 years ago.
My horror story was trying to average down on Nortel. Every business meeting I went to, co-workers would encourage themselves into bying more on the way down. The mantra was “It is impossible for Nortel to go bankcrupt” “The government will not let this happen” Well, the rest is history, or a horror story!
Back when I was still a Trend Follower, I bought San Miguel Beer (Ticker: SMB) to ride the uptrend. I average up from 15 all the way to 29. Bigger chunks were allotted at the top due to greed. All of a sudden, demand dried up and it quickly went back to 20. I immediately sold because my exposure is already 40% of my total portfolio. It was pure panic that day.
@Phil,
thx for this great example as an investor can actually lose with real estate. This is a great misconception, especially in Canada, that real estate is the best investment ever!
@Prashant,
that’s very interesting to see how you used options and leaps in your trading strategy. Have you been doing this for a long time? (I used to work in options and futures when I first started my career).
@Mred,
I know the feeling, I lost all profit I made the first time with PDN the second time I bought it!
@Richard,
yeah, I remember that. Lucky for me, I had sold my oil income trust a few months prior to this announce as I was buying my house in November of 2006 ;-).
@Johnathan & Michel
one word: ouch!
@Every Cents,
I don’t know this company but there must be a reason why the stock is going so low. Check it out and you might have your reason to sell right there! When I sold PDN (it’s a uranium producer), it was after Japan’s earthquake. I knew that even if the stock goes back up, it will take forever to do it. In the meantime, I could use my money for better investments. You might want to look into that option.
@Investing for Income,
I hope you have learned your lesson: never concentrate your portfolio into a single stock ;-).
Mine was a double whammy of bad investments. One, NORTEL… we all know what happened there. The other was when TD and Waterhouse got together and the American’s got scared and sold their stock, TD was smart and bought all the stock at record lows including mine which weren’t for sale. That’s what happens when you don’t have the physical stocks and they are in an account with a brokerage firm. GRRRRR!