It was early December of 2000 and I was just an eager high school student with an interest in finance. After a bit of prodding I convinced my parents to let me take $5000 (basically my life savings to that point) and open an online investment account with it. Being the middle of what we now know as the dot-com bubble, the stock market was on fire, it seemed impossible to lose money. So off I went to Datek.com (anyone remember them?!) to make my millions.
So there I was, a high school kid, with $5000 to his name ready to conquer Wall Street. The only problem was, I had no idea where to start! So I did what any trusting kid would do, I went to my dad and asked: “What stocks should I buy?!”
Lucky for me, it was around this same time that my dad had a friend from work who was some kind of big shot investor. We’ll call him Steve. My father proceeded to tell me of this great company his friend Steve told him about. It was a company just being spun off of Hewlett-Packard and it was going to be the next big thing. It was called Agilent Technologies (NYSE:A).
Well, that was good enough for me! My dad had invested on Steve’s advice in the past and done pretty well. So Agilent Technologies it was!
Being the newbie investor that I was, I went all in on Agilent. I took my whole $5000 and bought in at around $45 per share, and sure enough, off it went! The stock took off like a rocket ship reaching almost $100 per share just two months later. I was rich!
It was then that things got tricky. From that point forward the stock really took off. In the span of the next week the stock shot up from $100 per share to almost $150 per share! It was around this point that I decided I had enough. I had tripled my investment in less than 3 months, what more could I ask for?! I sold off my shares at just about the absolute highest point the stock reached. I was an investing genius, the next Warren Buffett! So I happily picked up the phone and called my dad at work to tell him about all the money I made.
The Fall of Rome
My dad answered the phone and I told him the good news, I had just tripled my money and sold all my stock! His reaction was not what I was expecting. “You did what??!!” It seemed both he and Steve the guru thought I was nuts to sell, “It’s only going to go up further from here.” they agreed. So I hung up, feeling not like I had made over $10,000 in two months, but like I was missing out on the opportunity of a lifetime. Terrified that I was making a huge mistake, I took half the money I made and bought back into to company the very next morning (facepalm). Roughly $8000 somewhere north of $140 per share.
As I’m sure you can guess, this story doesn’t have a happy ending. The stock almost immediately started a free fall as I sat, watching, repeating to myself “It will bounce back up any day now.” But it never did.
Day after day for the entire spring and summer I waited for it to rebound. Let me tell you, the slow steady decline was MUCH more painful than the rapid increase was joyful. Finally, sometime in the Fall of 2000 I conceded defeat and once again sold my entire stake in the company. Only this time I was selling below $40 per share (my original entry price).
Moral of the Story
Looking back on it, that was a fun time to be investing even if the markets were truly crazy.
The reason Agilent Technologies was the best investment I ever made isn’t due to the money I made from it. And it’s definitely not because of the money I lost from it. I learned some valuable lessons in those few short months. Lessons that helped shape me as an investor to this day.
The most important lesson I learned from that experience is: The market isn’t a get rich quick scheme. Don’t invest based on tips from friends that you hope will turn into the next Apple or Google. Develop a sound strategy and buy good companies which will deliver over the long haul. Which leads me to: don’t time the market.
The weatherman can barely tell us if its going to rain tomorrow. What makes you think anyone knows what direction a stock will head tomorrow? I listened to people who were sure a stock was going to keep going up and I paid dearly for it. What I was doing wasn’t investing, it was gambling. I had all my money on black & the roulette wheel was spinning.
Finally, be able to explain your reasoning for investing in something. Imagine you were in front of a group of people and had to explain why you invested in a company. Would you really want to tell them that a friend of a friend told you it was a good idea? Of course not. Always have a sound reason based in the fundamentals of the company before ever buying or selling a single share.
Warren Buffett is one of the most successful (and one of my favorite) investors in the world. If you ever read his interviews or quotes you’ll note he often has bluntly simple reasons for making the investing decisions he makes. It just goes to show that investing really isn’t that complicated. There’s no huge secret and you don’t need an 8 monitor computer set-up monitoring charts to make money. You just need to drown out the noise, and focus on buying solid companies when they’re trading at discounted prices. Easier said than done, I know, but definitely not impossible for any one of us to do.