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Lessons from Financial Fiascos

December 2nd, 2010 at 05:56 pm

Most of us have made poor financial decisions at some point in our lives, and I am no exception. I was reflecting about some of my worst financial decisions over the years and thought maybe someone else can learn from my mistakes:

1975 - After the death of my mother and father within a few months of each other, my sister and I sold my parents' home in SF to a relative of our estate attorney. We were young and naive and did not know the sales price was extremely under market value. We essentially gave away a home that was worth much more, especially because of its prime location. Selling the house wasn't the issue, it was making an uninformed decision... we sold it without consulting anyone else (e.g., an appraiser) and trusting our attorney 100%. Of course, we were young, vulnerable, grieving the loss of our parents and inexperienced in real estate matters. Lesson learned: Just because you have known someone for years and they seem kind and fatherly, it doesn't mean they won't take advantage. Think twice, wait a while, talk to others.

1983 - Newly divorced, I entrusted $22,000 to a family friend, a stockbroker, who talked me into the same investments he recommended for his parents. Big mistake. Today, I have approximately $1583 to show for that investment, and a K-1 that won't go away. It was a lot of money back then (and still is!). Lesson learned: Don't let someone talk you into an investment by using an emotional or personal rationale like "I had my parents invest in this." Do your research.

But did I learn my lesson? Nooooo... keep reading and you will see why. First, some background to explain my stock market experience:

1995 I was a late bloomer getting into the stock market and started buying stocks after researching some major companies, some of which were blue chip. Since I was a beginner, I had a fellow teacher who shared copies of Value Line to help with my research. I focused on companies whose products or services I liked or used, and bought individual stocks in lots of 100-500 shares for several years. My portfolio was doing moderately well until...

1998 I broke away from my strategy and bought some technology stocks based solely on my dh's raving about how these were the "up and coming" companies, and how his stocks had quadrupled in value, blah, blah, blah. So I bought (VRSN, XICO, XLNX)... and, about two years later, all of these stocks tanked with the dot.com implosion. Why I listened to my dh who had even less knowledge than I did, I don't know.

Then, to make matters worse, I kept those duds for years, despite the fact they could not possibly recover in my lifetime. I eventually sold these dogs, despite my "buy and hold" strategy. Most of my original stocks have been a solid investment, despite taking a beating in the most recent meltdown. Thankfully, I did not take dh's advice to sell my AAPL stock! But the experience gave me cold feet for buying more stocks and I lost my interest in the market for quite a while.

Nowadays, I am ultra conservative when it comes to new investments in the stock market. When I allowed myself to be influenced by my dh's enthusiasm and confident attitude... any maybe even a little by greed, I paid the price. Since retiring, I'm reluctant to buy more stocks, but for the younger folks, there are some bargains to be had.

Stocks I'm glad I bought and held: AAPL, ABT, AMZN, MSFT, WMT, PG, GE, SBUX, HPQ. Slow and steady, my original stocks have grown by an average of ~9.5% a year, excluding APPL which has had phenomenal growth. But then there were duds like WAMU, which became worthless. Lesson learned: Do your homework and think for yourself, then you have no one else to blame for your decisions.

"Self-trust is the first secret of success."
Ralph Waldo Emerson

5 Responses to “Lessons from Financial Fiascos”

  1. MonkeyMama Says:

    Great post - thanks for sharing!

    I can relate on the tech stocks. We graduated college in 1999 and dh (also a business major, mind you), got sucked into all these *insider tips* about tech stocks. I didn't like it one bit, and remember a conversation where he told me "They can't lose," or something along those lines. Rolleyes
    Anyway, we lost several thousand dollars and held on too long. I appreciate that we learned that lesson young.

  2. baselle Says:

    As soon as the words "They can't lose" and "its different now/here" are spoken, game over for any investment. Thank you for sharing. My thoughts on investing can be summed up:

    "If my investments run into the ditch, I want all my fingerprints on the wheel."

  3. CB in the City Says:

    Wow! Thanks for sharing. You've suffered some losses -- kind of makes me glad I've usually been too poor to invest.

  4. Ima saver Says:

    I can relate also. I have lost money on some tech stocks also.

  5. Jerry Says:

    I'm appalled at that attorney taking advantage of the death in your family, although I would imagine that since realtor.com didn't exist in those days it would lead to a little more difficulty in getting the right information. Still, yeah, it could have been done. People really do make emotional decisions when it comes to money, as you point out in this post. Great advice. People should never make an insurance or investment decision without serious independent review...
    Jerry

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