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Fail Fast, Succeed Sooner

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March 29, 2012 – Comments (1)

Location: Mikecart1's CAPS Blog

Author: Mikecart1

Anyone on here or anywhere can state what they did right and gain approval for being smart or making the right trades/plays.  You see it everywhere.  You even see Jim Cramer do this daily on his show Mad Money on CNBC.  He will sometimes say he missed a pick or two, but you will usually hear him say "if you followed my advice 6 months... year ago... etc. you would have made a gain of..."  You see it on many articles on here.  It is human nature because we hate to be wrong, but we hate even more of showing others that we WERE wrong.  Well, it's time to flip the script because I have found that I have learned the most when I have failed the hardest.  Here are my top investment speed bumps that may help the new investor or even the experienced ones!

1) FAZ - The infamous half brother of FAS part of the crew of terrible long-term stocks, possibly ever created in the history of the stock market.  For those unaware, basically these are exchange-traded-funds (ETFs) that work 3x +/- (for/against) a sector or group of stocks.  These happen to be related to bets for/against financials.  Well what did I do?  Well during 2009 as I was buying lots of BAC and C at their lowest prices in years, I decided to be clever and hedge my bet and buy a bunch of FAZ.  I figured I would sell FAZ when I made a little money and ride BAC and C to further profits.  Basically I was a greedy bum.  Well I didn't do much research on FAZ.  I knew what they were.  Yeah '3x ETF', whatever that means.  I had seen that they bounced up and down weekly but I failed to do one simple thing.  Find out what it does to a simple number like $100/share.  If you use Excel and simply put in a few numbers down of +5% and -5%, you will quickly realize that if it were to do this perfectly over and over, the share price would be LESS!  In fact, you would need a sector bet to go up more often than drop (if you were betting for) to even stay EVEN!  Furthermore, to add to my stupidity, I tried to average down on FAZ.  Well yada yada yada, I wound up losing around 80% of my investment on this ETF.  

2) GIGM - The typical Asian stock of recent years.  This is a provider of online entertainment software and services. It conducts its online entertainment business in two business segments: the gaming software and service business, which develops and licenses software for online real-money gaming solutions and applications, and the Asian online game and service business, which develops a range of online games for the Asian and worldwide market.  Well I followed this all the way from double digits to $2/share where I bought without considering the possibility that the regulations of stocks OUTSIDE the United States might be different.  I failed to understand this at the time.  I still own this stock for about a 35% loss.

3) WWE - Wrestling.  That is all you need to know.  I got this stock mainly to cash in on the dividends and since I was familiar with the company since I catch some of Monday Night Raw every week.  However, what I didn't consider about that huge dividend was that I should have also looked at the Payout Ratio.  After I bought WWE, I saw the payout ratio was way over 100% and soon the inevitable occured - not only did WWE have to cut its dividend, but the market also saw this as a big negative to the company share price and has since fallen to single digits.  It is around $9/share and I am in a 25% loss on this stock.

4) MT - ArcelorMittal is a global steel company.  I got this stock because of its relatively low price compared to its stock history, the need for steel when the global economy goes up, and its decent 4% dividend.  However, what I failed to consider was that Luxembourg has a special dividend withholding tax.  Not until I check my account do I realize that Luxembourg takes 15% away from the dividend!  This might not seem like a lot, but 15% quarterly gone adds up to some serious money.  Even though I am up on this stock, I failed to locate Luxembourg on the map and further, I did not research on whether the country has any special tax requirements.  

5) Fifth, I can easily make a list of all the stocks I should have bought.  But I won't.  Because anyone can look back on 2009 or 2008 and say they should have bought x shares of xyz company because today that stock has gone up 1000% or whatever.  That is ridiculous because you can also pick out several companies during that time that either went pink or bankrupt.  Don't chase the past, just look to the future.

6) General trading tip.  I made this error recently doing a trade online.  If you are going to put in a limit order for a stock, put in a limit order that is reasonable.  Additionally, if you believe this order price is reasonable (say a few cents below the current price or within the range of the day or week), be patient!  Don't get frustrated and start changing the order.  I wound up getting a partially executed order for part of the trade.  Then I got impatient and raised the limit price so that the rest of the order got executed.  What happened here?  I got charged for commission TWICE!  This may seem like a no-brainer to you, but I'm keeping it real.  

7) Life tip.  No one cares about you more than you.  This is something people need to realize and it goes for more than just investing.  I posted a few years ago about my experience with a Financial Advisor who I'd like to call a Financial Disaster.  But I still see people paying for advice or using a financial advisor to achieve their goals.  I see people in the gym, paying personal trainers hundreds of dollars for advice they could have easily found for free on the internet or through experience.  People need take control of their life because in reality, if you don't, who will?

Bottom line, this post is to show that no one is perfect.  In fact, I basically showed how imperfect I am as a trader the past few years.  I think more people can learn from mistakes than seeing yet another author post about all the right decisions he/she made in the past.  Hopefully this helps someone be a better investor.  Lastly....

Fail Fast, Succeed Sooner!

1 Comments – Post Your Own

#1) On March 30, 2012 at 1:00 PM, leohaas (32.57) wrote:

The tripple ETFs like FAZ and FAS (and to a lesser extent, also the double ETFs) all suffer from the problem you describe. They are not investments, they are speculation. You can make enormous amounts of money in a relatively short period if you are right about the direction of the market/sector the ETF covers (of course at the risk of losing an equal amount if you are wrong), but you will always lose holding them long-term. That is why I have my thumbs down on many of them!

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