Mistakes can teach life lessons
By Jack Markowitz
Published: Thursday, Nov. 29, 2012, 12:01 a.m.
Ah, human frailty. What investor hasn't made mistakes trying to make money?
It may be that mistakes are even more endearing than successes.
Warren Buffett, the famed Oracle of Omaha, would be a bore if all he had going for him were his billions. George Soros is like that: a household name for money, power and (strangely) leftist opinions, but we are kept in the dark about the boo-boos that might humanize him. In contrast, Buffett freely admits sometimes wondering where his brains were.
Expertise is expected of those who sell securities. The worst thing about a stockbroker's life must be his mistakes. A year or so ago, a veteran broker was asked by a customer for ideas in energy and high-tech stocks. His picks: Chesapeake Energy and Hewlett-Packard. And maybe they'll work out yet. But meanwhile, broker and customer haven't telephoned. There is this deep pit between them, into which the prices of both recommendations plunged.
This holiday season is brighter for some true confessions about common pitfalls in investing.
A grown man, now a chief investment officer at a mutual fund company, said he got his start while still a schoolboy (a great idea right there, by the way).
At age 11 he invested extra money from a newspaper route — but too sentimentally, a common trap. He bought a few shares of a hometown-based snowmobile manufacturer, the former Rupp Industries, and later signed up for stock in a startup basketball team, the Cleveland Cavaliers. Result: no wins, two losses. Rupp went bankrupt, and the Cavs went private.
“Just because you like a company or a product,” he said, “doesn't necessarily mean it's a good investment.” And how many steel investors in Pittsburgh learned that one?
Another newcomer, cocky with a college degree, bought Delta Air Lines in 1981, pocketed a quick 50 percent and sensed his inner genius. Believing he could “time” the market and make money faster trading options, he failed miserably: “Short-timing is a losing strategy.”
A third penitent said he bought his first stock while employed at his first job out of college. It was a medical imaging company touted by a friend who was training in that very industry. The investor, a finance major, went the extra mile, too. He personally researched the company and bought in at $5 a share — and eventually sold out for $2.50.
“The experience taught me that no matter how much research you do or how much faith you have in a company, investing in one stock is too risky.”
If such tales seem to point up the wisdom of socking your wealth-building stake away in mutual funds (don't keep all your eggs in one basket), it's no big surprise.
All appear in the shareholder letter of the giant Valley Forge-based mutual fund enterprise, Vanguard Group, “In the Vanguard.”
Not all come across dripping regrets. Financial advisory executive Martha King relates that her father taught the importance of saving from an early age. Dad also shared his stockholding strategy and opened a bank account for her savings from baby-sitting. “I knew to set up ongoing contributions,” she writes. “The value of saving and taking a long-term approach are lessons that still apply today.”
And it's parents who should teach them. What more long-lasting gift?
Jack Markowitz is a columnist on Thursdays for Trib Total Media. Email him at firstname.lastname@example.org.
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