I purchased my first stock in 2002. Based on advice from a mentor, I bought Ameren (AEE), which was a local utility company in my city that paid a nice dividend. I went with the “safest” stock I could find because I was terrified of losing the $500 that I invested.
Once I saw that my money didn’t disappear overnight and that the stock price rose, I was hooked. A little like a newcomer to a casino who wins their first night, it wasn’t the best way to begin. I would have been better off if I had lost a little with my first investment because then I would have been more cautious with my next few stock picks.
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It still amazes me how confident I was in my stock-picking abilities with the extreme lack of knowledge that I had at the time. Just having a little bit of luck with that first investment blinded me to my own limitations. In hindsight, it probably would have been a lot safer to choose investments that were better suited for beginners.
My Worst Stock Pick
Over the following years, I began making dumb stock-picking mistakes, failing to see the warning signs of bad investments, but none compares to my blunder with 3D Systems (DDD).
Long story short, it was 2013, and 3D printers were just coming on the scene, and everyone was talking about how they were going to change the world. So, I picked one of the companies that manufactured 3D printers and went in big.
And, just last fall, I sold my shares at an 83 percent loss.
The Mistakes I Made
Timing is everything. Some ideas are before their time. Did you know that 10 years before Apple created the iPad, Microsoft invented the tablet? The market just wasn’t ready for it yet.
In my case, I also bought at the wrong time. I was late to the party after all the hysteria about 3D printers had begun.
I didn’t know anything about the company other than that they made 3D printers. My thinking was that if the industry explodes with growth, all the companies in it will as well. The fact is, however, that there are good companies and bad companies in every industry.
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My Best Stock Pick
So far, my best pick has been Amazon. Being honest, there was some luck here as well, but I had slightly better reasons for believing in this company.
The reasons I picked Amazon:
- They were diversifying well. Famed investor Peter Lynch always disliked companies that diversified too much because he found that they couldn’t sell all items well. Generally, that seems to be true, but Amazon has consistently proved to be an anomaly to that thinking. To think that they started as just a bookstore and now sell just about every product and service under the sun is mindblowing.
- Jeff Bezos had an extremely long-term vision. One of the things I have always admired about Bezos is that he has always been happy to delay short-term profits for long-term potential. Very few people (or companies) think like that way, but he did and still does. In this case, that has been huge in the success and extremely high valuation of Amazon.
- I was finding that I was personally using Amazon all the time and could only see myself spending more money there over the years to come. This isn’t a reason to buy a stock, but since I had a lot of friends who were doing the same thing, it was a clue as to what was going to come.
To date, the stock is up 1,188 percent over my purchase price in 2010 — my best pick so far.
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Though I’ve seen success, I want to caution everyone to avoid dumb mistakes like me and start investing with something a little safer than individual stocks. Yes, there is money to be made picking stocks, but there is a whole lot to lose as well, and one of the best ways to grow your wealth over time is just not to lose it.
I’ll leave you with a great quote from Warren Buffett: “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.”
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