This is one of those articles (or series in my case since I’ve done a lot of stupid things) I’ve been dreading to write. It’s never fun to rehash horrible memories of your failures but it needs to be done. I hope putting my stock disasters into words will be a healthy exercise for my continued growth as an investor. And it’s good for my daughters to know that the investing wisdom they see in Dad today wasn’t always so wise.
I’m not going to speak of how I made these decisions or why they could have happened. It really doesn’t matter and I’m not looking to make excuses. It would have been easier to learn these lessons from others but apparently I’m stubborn and I had to learn the hard way.
Only my wife has knowledge of these stories. As I’ve stated often, my mistakes are many but I’m eventually learning from them – better late than never. This is really a series of “partial” confessions because there is only so much room to describe all my mistakes.
Humble pie is served my friends … so gather around and bring plenty of tissues (because I might cry a little). Let’s start with the wonderful disaster of Grubb & Ellis.
Grubb & Ellis – Loss of $10,063
I could have chosen several small company stocks that have provided me with the displeasure of losing money. But Grubb & Ellis seems like a good candidate to reminisce the horrors of losing hard earned cash.
Grubb & Ellis, a commercial real estate service firm, was at one point the top brand worldwide in commercial real estate. They had offices all over the world, they were an industry leader, and they were growing.
This was a company that had grown wonderfully until their last merger in December 2007 … that purchase sealed it’s fate. It acquired a debt-filled company that never fit and they did this at the absolute wrong time.
The mighty can fall, but they can often rise again.
From the Jim Collins book “How the Mighty Falls”
My stock purchase (March 2011) was a couple of years after the Financial Crisis and I was “hoping” it would rise again. It was once a great company that I purchased for $1.00 per share. But it was too far gone, soon after filed bankruptcy, and my shares became worthless. This turned into a quick $10,063 loss.
Lots of debt (check). Declining revenue (check). Management turnover (check). Industry in turmoil (check). Low cash and cash flow (check). It had everything and more to make it a horror stock to buy and yet I bought it. How could I be so stupid?
What did I know that the market or investing gurus (i.e. Warren Buffett) didn’t? This had to be an undervalued stock because the price was only $1 per share, right? It was an industry leader and it HAD to return to prominence, right? How could I be so stupid?
Lessons Learned
There are so many lessons to be learned from this loss but I’ll trim them to only six. And remember, not learning from mistakes eventually becomes a decision. These are not decisions you want to be making over and over.
- Hope is not a strategy – There was nothing in this company that screamed “buy me.” Seriously, there were no signs of this company having any chance of a comeback.
- Investing in “penny stocks” is gambling – Why didn’t I just go to Las Vegas and put all my money on Black 22 at the roulette wheel? I would have had a better chance of winning than buying Grubb & Ellis.
- The mighty don’t always rise back up – Grubb & Ellis was once mighty but it made some bad mistakes at the wrong time. This will crush nearly any company. And making a mistake like they did just before the financial crisis was a death blow. Kodak, Blockbuster Video, and many others fell just like Grubb & Ellis.
- Fundamentals and quality are important – When choosing to invest, junk companies never beat quality. Never! Cheap doesn’t equate to value. I bought junk. Period! There were no solid fundamentals present in this company.
- Fix mistakes before it’s too late – This is especially true with risky stocks. When this went from $1.00 to $0.50, I could have realized then that having half my money back was better than none at all. There was no exit strategy on this stock – it was all or nothing. Nothing won!
- Don’t swing for the fences – Buying a company like Grubb & Ellis is like trying to hit a home run blindfolded and having both hands tide behind your back. It’s never going to happen. And if it did it was just plain old luck.
My years of flat and minimal net worth (though my income was rising), were scattered with all kinds of stupid gambles like these. If I had invested then like I’m doing now, it’s very likely my retirement would happen sooner.
My Real Cost Wasn’t $10,063
Let’s talk about that hard earned money and what it really cost me. If I had invested that $10,063 properly (i.e. Master Stock List) and earned 8% until I turned 62 (about 14 years), that would be worth $29,557.
My base pay at work in 2011 was $130,252 (or $62.62 per hour). Let’s assume I had a 20% tax rate on my income, that means I’d have to earn $35,468 at work. In reality, that means I’ve got to work an extra 566 hours or 71 business days or over 3 months extra.
I’ve got to work an extra 3 months because I didn’t properly invest that $10,063.
That’s the real cost .. I’ve got to work an extra 3 months at work because I didn’t properly invest that $10,063. That means retirement will have to wait.
Summary
I had so many gambles like the Grubb & Ellis one and it has cost me dearly. It didn’t dawn on me back then as I was making these gambles but preserving capital is critical if you want to build wealth.
Like they say so often in sports “Defense Wins Championships.” But preserving your capital from stupid losses applies here. Play defense by avoiding capital loss but have a good offense by investing (buy and hold) in strong companies.
Several years ago (during my horrible investment years), I once had my boss ask me “When did you realize you were wrong?” And my answer … “Being wrong never crossed my mind.” That could be the crux of the issue right there. I’m not smarter than the market or the investing gurus but I was too stupid to realize this.
My retirement got pushed back because of these (and many other) mistakes. At least I learned before it was too late and I’m hoping to retire at 62. If I didn’t have my pension and an income of $250,000 then 62 wouldn’t happen either.
The timing of these mistakes was just about the time I started realizing my financial health was not good. It took these errors to make me change course but by then I had already lost thousands of dollars.
Part 2 in this series is an even bigger disaster than buying Grubb & Ellis. The money lost was significant and it was just plain insanity.
Thanks for reading!
Mr. TLR