Confessions from a terrible stock picker
moneyrelations :: Jul.26.2007
My self-flagellating post was so liberating yesterday that I decided to confess to another financial faux pas.
The first stock I ever bought was Tahera Diamond Corp. I got in at 60 cents a share on March 8, 2005. I went in purely based on the hype of message boards. The stock was extremely liquid, trading at about 2 million shares a day. They were about to open Nunavut’s first ever diamond mine and the 3rd in Canada. They had partnerships with Tiffany and De Beers (later with Teck Cominco). These people had to know what they were doing even if I didn’t. If I didn’t jump on this, I was going to miss the opportunity to get mega rich.
Does this in anyway sound familiar? Well, after a 5 to 1 reverse split and the fact that it’s trading below 60 cents tells you exactly how much I lost (*cough* 80.9%). The lessons I formulated for myself and hope to apply in the future are the following:
Don’t believe the hype of message boards. As witnessed by the saga of John MacKay, CEO of Whole Foods, there are pumpers and bashers lurking on boards to manipulate the price to suit their purpose.
Don’t try to swing for the fences with the first at bat. I tried to do this by taking a large position from the beginning in order to avoid transaction costs. In hind sight, paying extra commissions from buying on dips or even highs would still be cheaper than losing thousands of dollars.
Stick to the bid price. I get caught up in the frenzy and I get impatient when my order hasn’t been filled. I nudge up my bid price only to see the stock drop a week later. Even if an opportunity is missed, other ones will appear. It’s like a box of Kleenex; another one always pops up.
Don’t fall in love with the industry. Diamonds did not prove to be my best friend. A few weeks after TAH, I picked up shares of Forest Gate Resources, another penny stock which had property surrounding Shore Gold’s motherload of kimberlite body in Saskatchewan. To this day, I don’t know what kimberlite is but I think it has diamonds in it. This play was strictly to ride someone else’s coat tails, which is vaguely reminiscent of the tech boom when everyone wanted in on the action. By the way, I’m down 68.4% on this one.
I guess I should have put stop losses on these bad boys but I knew they were going to be volatile. I just didn’t know they would suck this bad. In any case, I’d say there is a STRONG possibility that I’ll sell this year to offset capital gains.
My sad confession concludes here. Notice that I did not mention fundamental or technical analysis because I did not do any. The good news out of this debacle is that it has motivated me to learn more about investing. Lessons are so much more meaningful when it kicks you in the ass.
Investing, Stupid ::
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