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Mark Goodfield
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During a misguided summer in the late 1970’s I worked for my father, an accountant, to make money for a trip to Europe. To my father’s consternation (he was asked to try out for the Cleveland Indians but became an accountant instead due to family circumstances) I continued along the path of... More
My company:
Cunningham LLP
My blog:
The Blunt Bean Counter
  • Lessons Learned By an Investing Dummy

    In life, one makes numerous mistakes; some costly from a personal relationship perspective and some costly from a financial perspective. A friend of mine was recently complaining about a dumb move he made in the stock market and it got me to thinking of some of the less than intelligent moves I have made investing.

    For anyone who is a reader of my blog, my Resverlolgix investment is definitely the number one costly mistake. For those who have not read the blog, it is a January, 2011 blog called Resverlogix: A Cautionary Tale (http://seekingalpha.com/article/246783-resverlogix-a-cautionary-tale) and it is one of my better ones (blogs and investment mistakes) if I do say so myself.

    Notwithstanding that disaster, I have also made two errors in regard to playing cute with the bid and ask price on both the sale of a stock and the purchase of a stock. About ten years ago I purchased a stock involved with the debit machines at grocery stores and alike. It was actually a great call on technology which I will discuss further below, but the company was bleeding and I decided to sell. The stock was $2.10 to $2.12 and I was so upset with the stock that I decided I was not going to lose any more money and put my shares up for sale at $2.12. My order did not get filled and the next day the company came out with bad financial news. When everything settled, the stock was worth 40 cents and I had lost another $1.70 per share over two cents.

    What do they say about it being okay to make an error once, but if you make the same mistake twice then you’re an idiot? Well, hello. This year I decided to purchase a stock that was trading around $3.90 to $4.10. It was in that trading range for weeks, so I put in a bid for $3.90. I got a partial fill at $3.90, but it hovered around $3.95 to $4.00 for days. Of course, a week later it announced some good news and went to $4.40 and I decided I would not chase it, which is a good rule in general. The only problem is two weeks later they announced a significant licensing agreement and the stock went to $8. At least I had a small fill, but still, I lost out on a $4 gain by trying to buy for ten cents less.

    So, lesson number one: once you decide to buy or sell, just do it if the bid and ask is within a reasonable range.

    As noted above, I had made a good call on the debit card technology; however, I was too early to the game. Stocks in companies promoting disruptive technologies have unbelievable upside, however, the more disruptive the technology, the longer to market and the more financing problems the company is likely to have.

    Thus, lesson number two: stay away from a stock involved in a disruptive technology unless you are willing to put it in the speculative portion of your portfolio and to leave it there for up to ten years, if it survives.

    Lesson number three: stick to your guns.

    I had a couple of stocks that I held for years during which they barely moved from the initial purchase price. I lost patience and sold and saw both the stocks triple within one year of my selling.

    This lesson can also be called the “Ask Mark what he has recently sold and then buy it” lesson.  

    The above is pretty tongue-in-cheek, but it is really important to establish personal guidelines in regard to buying, selling and holding stocks and similar investments.

    Feb 09 11:47 AM | Link | Comment!
  • How to use Stock Forums and Chat Boards
    As someone who enjoys monitoring stock message boards and online forums, I am going to give you my opinion on how to utilize and monitor these boards.

     
    My first piece of advice is to assume any non-factual post on a forum is self-serving – i.e. if the post is not factual information from a press release, issued financial statements or a document on Sedar or Sedi, you must be skeptical of the poster’s intentions. That is not to say that most posts are disingenuous, but you must start with the presumption they are disingenuous.

     
    You must always be aware of pumping and dumping. This typically occurs with thinly traded stocks where someone purchases the stock and then, usually under several aliases, posts great things about the stock on stock forums. There have been cases of this in the US, the most notorious involving fifteen year old Jonathan Lebed who bought thinly traded stocks and flooded market forums with messages touting the stocks. When he achieved his goal of pumping the stock he would sell. He supposedly made over $800,000 in this manner until the SEC caught up with him and he negotiated a $300,000 settlement without admitting any wrongdoing.

     
    Once you have accepted that you must be skeptical of every post, you then need to weed out the, how shall we put this, “the less intelligent posters.” Most boards have a significant percentage of unsophisticated posters who really have no idea what they are doing or saying. Weeding those investors out is the easiest part and you can just simply put them on ignore. What is trickier is ensuring the intelligent posters have no vested interest other than a community discussion on the merits of a particular stock.

     
    There is no shortcut in determining which posters you should follow. Most forums allow posts to be recommended, so you should start with the most recommended posters, but recommendations are sometimes based more on quantity of posting than quality, so that is not enough on its own.

     
    You have to read posts to determine the knowledge of the poster and the quality of the posts and, after a while, you begin to grasp which posters are worth reading. This can take months or even years. For example on the Investor Village board, I have always read the posts of a poster with the alias of Oiljack with interest. He has great knowledge in the Oil and Gas industry and over time has picked several winners in the Oil and Gas patch with one big miss.

     
    Within stock forums, a Darwinian effect can even take place where better posters are hand selected to become part of private forums. This eliminates having to weed out the posters who have no clue what they are talking about.

     
    Where private boards are not started, the Darwinian selection works well, since other excellent posters become attracted to those they perceive as intelligent and certain boards then fill up with good posters. For example, Oiljack is like a pied piper, wherever he goes other intelligent posters seem to follow. A good board will have a mix of posters, some who are great researchers and find every piece of public information on a company, those that have an expertise in a certain field (i.e. are in the Oil and Gas business or are medical professionals following bio-tech stocks) those that can interpret legal documents and those that can interpret financial information. When a board has all those attributes, you have increased your odds with the investment as ownership of that particular stock is constantly questioned or reinforced.

     
    Reinforcement is a major issue if you read message boards. The board can become so enamored with a stock that people lose objectivity as the posters each reinforce the brilliance of their investment in a particular stock and anyone fairly questioning that opinion if often treated as a “shorter,” someone who wants the stock to drop. Human nature being what it is, this is the hardest issue to safeguard against, as greed becomes contagious and the herd mentality overruns objectivity.

     
    If one has the time or inclination, stock forums can be a valuable asset in monitoring your investments and finding new investment ideas. However, remember its caveat emptor or in this case, let the message board reader beware. 
     
    Jan 11 12:53 PM | Link | Comment!
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