Investing

My Dumbest Investment

My dumbest investment turns out to be not so much what I bought, but what I didn’t sell. Just out of university, I joined a start-up tech company in the go-go days of the late nineties. It was a good time to be an engineer. Companies held BBQs to hire software developers and gave away PT-Cruisers just for applying for a job. Employers gave out stock options and bonuses like drunken sailors just to keep people from leaving. On-site massages were a common employee perk.

A high-flying, NASDAQ-listed, high-octane tech outfit bought out the start-up company I was working with. The value of my vested stock options was an incredible 70% of my net worth. In hindsight, I should have sold all my options as soon as I was eligible to sell. I didn’t know a thing about how the stock market worked then (my wife says I still don’t!) and was dreaming about the millions my options were going to be worth in the future.

I did think about selling but I was worried about the wrong things. I was worried about the taxes I would be on hook for and worried about how much of an idiot I would be if I sold and the stock rocketed from there.

You can easily guess how this story ends. A year or so later, my employer severely disappointed Wall Street expectations and the stock tanked spectacularly. A few months and a lot of internal turmoil later, my employer was acquired by a much bigger fish. The new company restructured operations by laying-off a significant chunk of the workforce, including yours truly.

Now, a couple of years later, I am (hopefully) much wiser for the experience. I consider my experience a very expensive education:

  • Never tie-up any more of your financial future with that of your employer more than necessary.
  • Never have too much riding on one stock.
  • Consider buying and selling a stock strictly on its merits, not tax issues.

Mint’s Take Away:

Although our Tuesday Train Wreck series are generally anonymous, today’s story was shared by the Canadian Capitalist at CanadianCapitalist.com.

Even if you didn’t experience the dot-com bust first hand, there are many lessons to be learned from that era. When you are considering investing in individual stocks, you should consider these two points mentioned above:

  1. Never have too much riding on one stock.
  2. Consider buying and selling a stock strictly on its merits, not tax issues.

Much like the importance of keeping track of your daily spendings, it’s also important to keep track of your individual stocks. Unlike many index or mutual funds out there, you can’t simply buy and ignore individual stocks. Because of reasons like these, you may be better off considering the value of investing through index or low-fees mutual funds.

To learn more about investing sensibly for your future, consider checking out books such as “The Boglehead’s Guide to Investing” or “The Little Book of Common Sense Investing” from the library. You can also submit your worse financial train wreck story to us and have a shot at winning these great personal finance books!

Train Wreck Tuesdays are a weekly post of horrible financial mistakes. They are posted anonymously. Submit your story; if you’re selected, you get a free personal finance book. The best comment gets the same prize!