Last week, I excitedly wrote about my new stock play: Twitter. For those who have been following Twitter (pun not intended, but kind of intended), this has turned out to be a fantastic way to lose money in a short period of time.
I knew in picking individual stocks, I was taking on significant risk. What I didn’t realize is that the lock-up period for Twitter was coming in a few days. The lock-up period is when insiders at the company, who might have paid pennies a share get to sell at the current stock price. Buy shares at a few pennies and sell at $35 is a fantastic way to make money. Unfortunately, it creates more supply and price goes down.
I should have done this research as I did when buying Facebook. I didn’t. The egg on my face is well-deserved. I still believe it is a very good company and I intend to hold onto it for a long, long time so I used the opportunity buy some more and dollar cost average a better price for myself.
Even the Experts Don’t Get it Right
While I was try to figure out which hat goes best with egg-face, I got the June issue of Kiplinger’s Personal Finance. (Side Thought: Why do magazines always seem to live a month in the future?) The issue has an article about when to sell a stock. The advice boils down to, sell when the stock no longer meets your objectives.
Sounds good in theory, but one of their examples has blown up in their face since the magazine went to press. They say that if you love growth stocks and fell in love with Apple, you should unload it. They used the price of Apple on April 4th of $532. The last week of April saw Apple jump more than 10% to go above $585.
People invest because they want to make money. If you got to specific or cutesy about focusing on Apple’s growth, you missed the value. That laser focus would have stopped you from reaching your main objective… make money.
In fairness, Kiplinger’s does mention that Apple’s “bruised shares may attract bargain hunters”, so they’ve hedged themselves well.
You really have to know what you are getting into when you pick individual stocks. I knew the risks. On the other hand, over the past 18 months, I’ve done quite well. Perhaps this has lead me to have a false confidence in my ability to recognize good value. I openly admit that my dog could have picked good stocks in this market.
In any case, all individual stock picking is done with a small percentage of my overall portfolio. So even when I wear my egg face, it is a very small egg, and the rest of me is smiling.