Whether Yesterday's Investment Mistakes Apply to Today's Market

by: SA Editor Rocco Pendola

While it's a natural human tendency to want to tell the world when you do something well, it's not quite so easy to publicly reflect on areas where you made big mistakes. I've learned the hard way, however, that doing just that benefits all involved.

Two things happened Wednesday that prompted me to reflect and consider how much more money I would have today had I made better choices as an investor just over a decade ago.


PetSmart (NASDAQ:PETM) reported earnings on Wednesday. Every time I see PETM cross the wire, I torture myself. On the news, PETM dipped a bit to around $40. That's a pretty darn good price, considering where I got in, with 500 shares, back in the year 2000. I paid about $2,500 for my 500 shares.

As 2001 commenced with a drop in the share price, I did not stop to consider the reasons why I bought the stock in the first place. Impatience ruled and I sold for a loss. Within a year the stock moved into the double digits, started paying a dividend and, eventually, traded north of $40.

Also on Wednesday, I was looking through some old files. I came across statements from the McDonalds (NYSE:MCD) dividend reinvestment plan. Throughout 1996, I was buying shares of MCD, on a monthly basis, for between $45 and $50 a share. At some point toward the end of 1996, I sold the shares, probably to buy something I did not need. I was about 21 years old at the time and quite a bit dumber than I am now.

Anyhow, I've missed quite a few dividend payments as well as the opportunity to dollar cost average into the stock for the last 15 years. I really do not want to do the math to see the stake I would have, today, in MCD at $87.50 a share.

Don't Chase (or at Least Be Careful Chasing) IPOs

Between 1999 and 2001, I made cold calls to presidents and VPs of sales at companies, selling them sports hospitality packages. It was an excellent gig to have during the dot-com boom. And I made the calls from downtown San Francisco, just up U.S. 101 from where people were getting rich overnight.

I still remember the names. I idolized these VPs of Sales -- Woody Shackleton at Foundry Networks (FDRY), Harry Silverglide at Extreme Networks (NASDAQ:EXTR) and Mike Backlund at Interwoven (IWOV). With the exception of EXTR, you can no longer pull up a quote on those companies.

I remember calling their direct lines, before hours and after hours (these guys got in early and left late), and jousting with them for the sale. If I could have produced trading cards with their likenesses I would have.

I wanted to be as rich as they had become. While I knew it was not possible, I kept watching their respective stocks rise. So, at one time or another, I got into to each of them ... at precisely the worst possible time.

Consider EXTR. I forget the particulars, but I bought it somewhere closer to $100 during the height of the insanity in 2000. It closed Wednesday's session at $2.95. Now, at least I can say I sold it for a lot more than three bucks a share, but, this illustration provides a nice illustration of exactly what irrational exuberance looks like.

Fast forward to the present. And I have conflicting thoughts about how to proceed.

I do not have answers, necessarily to these open questions. They are the types of things I think about when I drink beer or sit under a tree listening to Elliott Smith songs.

Has the world changed for investors? More specifically, clearly the smart bet in and around 1996 or 2000 would have been to buy and hold a blue chip like MCD and make a speculation on a growing company like PetSmart. But, is that type of investment style dead? Has it gone down with the notion that home ownership sits at the foundation of the American dream? Will we look back with such fondness on MCD come 2021 and whatever today's equivalent of PETM is?

And, in terms of IPOs, are today's tempting ones -- LinkedIn (LNKD) and Pandora (NYSE:P), just to name two -- somehow different from the three I mentioned that set the world on fire in 2000?

I want to believe that they are. Looking back, I don't think Foundry, Extreme or Interwoven really changed the world. Maybe there are people who will take exception to that statement. Foundry and Interwoven, for instance, did quite well as takeover targets, so I am not saying they brought no value to the table. But did they profoundly change the way people do things, share information or entertain themselves?

You can make the case that LinkedIn has completely changed the face of head hunting, recruiting, networking and looking for a job. It accomplishes professionally what Facebook does personally. And Pandora deserves a world of credit for how it brought the iPod experience countless steps along, took the term "radio" and turned it on its ear and broke ground with its Music Genome Project.

Simply put, we tend to understate what LinkedIn does when we compare it to Monster (NYSE:MWW). And Pandora gets the same slight when people superficially refer to the MGP as little more than "personalization." That's like calling the iPad a screen that you can touch.

So, let me ask you, in my cheesiest, bad talk radio host voice, America, what do you think about these vexing questions? It's costs nothing to comment ...

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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