Force Protection: Never Fall in Love with a Stock

When it comes to analyzing the markets, technical and fundamental analysts are quite often at odds. There is one cardinal rule of investing upon which they can all agree: That you should never fall in love with a stock.

Like most rules, it is easier to recite than to practice.

I must admit, I had a little bit of a love affair with a stock called Force Protection (FRPT). In February 2006, a friend mentioned to me that a small company listed on the OTC just received a large order for from the Army for mine resistant armored protected vehicles, also known as MRAPS. The MRAP provided more protection from improvised explosive devices than the thin-skinned or up-armored humvees. As a veteran, I recognized the significance of this technology. I immediately purchased shares and diligently watched the share price.

As I continued to research the company, I realized there were message boards where people discussed FRPT at length. On a daily basis, the board members argued the stock’s strengths and weaknesses- but mostly the strengths. I just followed along and read. In no way did I feel I had the experience to tangle with the others who had done their research. In my mind though, I truly believed in the company and felt that one day, it would be a $50 stock.

While the stock did increase in price over the summer of 2006, the real run came in November of that year. On that fateful fall morning, FRPT gapped up over a dollar after receiving a large contract for more MRAPs. The run continued as it was announced the company would be listed on the NASDAQ. The stock climbed up to $24 before it began to decline. It was around this time that Force Protection’s competitors were starting to get larger than anticipated orders. Needless to say, I held on to my shares because I believed in the company. I firmly believed that there was no reason why this company should not receive all the orders for the MRAP.

In the spring of 2007, the stock did recover and ultimately reached a high of $31 before another decline. And what did I do? I held on to my shares and rode the stock down to around $14. By this time, I was an emotional wreck. How could everyone not see that this was truly a fantastic company? I reinforced my beliefs by listening to the positive comments on the message boards and the opinions of the analysts that had recommended to buy the stock. I ignored the negative comments. However, slowly but surely, I was starting to listening to those that attacked the stock. Before, when someone opined negatively about FRPT, I dismissed the person as having some ulterior motive. But slowly, I started to think “maybe they are right.”

Throughout this time, I continued to buy other stocks using technical analysis. Force Protection was the exception. This stock was just like my mutual funds- a long-term holding. However, after seeing my trading account going on a roller coaster ride, I knew something needed to be done.

Toward the end of the summer, Force Protection had one more run left in it. I noticed that as the stock was rising that on the left was a big peak at $31, followed by a smaller peak at $24. The stock price was now at $17. Could it be forming the much feared head and shoulders topping pattern?

Once the stock got into the $25 area, it started to sputter. With a child on the way, I knew I had to end the relationship with FRPT. In October of 2008, Force Protection and I parted ways. It was a tough decision. I had spent every day for almost two years researching and following the stock that I saw rise from a no-name OTC stock priced to a small-cap superstar. The relationship could not have ended at a better time. After the head and shoulders pattern was completed. The stock price collapsed. At its lowest point, FRPT traded below $1.

I was lucky. Most individuals that fall in love with a stock never can end the relationship. They ride the stock down, damn the losses. There are plenty of FRPTs out there in the world. Pull out a book of old charts. History is littered with examples of once high-flying stocks that crashed back to earth. Stocks cannot go up forever. Who would ever have thought that stocks such as Potash (POT), Apple (AAPL) or Research in Motion (RIMM) would come back to earth? This brutal bear market further reinforces the foolishness of falling in love with a piece of paper.

Occasionally, just as someone might check up on an old flame, I check the quote for Force Protection, just to see how the old girl is doing. After all, it was a good time while it lasted. I think I am broken of the spell, but then again, I have noticed that the company seems to have turned the corner, and the chart shows that it may be forming a base.

Disclosure: no position

Comments

[investor88:]

Agree with Kingsley never fall in love with a stock never mind some investing legend saying that the preferred holding period is eternity. Kingsley has given first hand experience to prove his point, no doubt there will be many other stories to prove the point of not falling in love with a stock.

Someone said the only reason to hold a stock is if it is rising, some think this is intellectual lightweight stuff but the logic is there. Like not falling in love with a stock.

2008 Nov 20 09:27 AM

[Dublin25:]

Agree with the never fall in love with a stock part - but otherwise this is an irresponsible article, bascially bashing FPI. This may have been valid in Decmber 2007, but not now. I am in like with this stock, but not in love. :-p

2008 Nov 20 03:10 PM

[Lemurhouse:]

FRPT looking very sexy again right now though.

2008 Nov 21 09:00 AM

[captbecker:]

The article is flawed. The Chart shows his sale in January 08, while the text says he sold in October 08----much too late !!

2008 Nov 22 12:15 PM