Harsh Lessons from the Investment World – entry 005

(This post is part of a series of posts about being an investor newbie)

Now we get into the good stuff. As you may know from my previous post I was having issued getting the account started because we were waiting for the check to clear. The account was funded as of Tuesday evening when I logged in! Now, there are several key points here. As mentioned in the previous post, my research was solid for a friday purchase. Since I wasn’t funded until Tuesday I was going to have to start the research all over. But I didn’t. I was too eager to get started.

1 – NEVER invest because you are anxious – Make sure you have accurate, complete, and UP TO DATE research to indicate it is a good time to buy.

Oops. But how bad can one mistake be? I wouldn’t know. My eagerness to begin (emotional) took precedents over the rules (logical).

2 – NEVER put in a market order before the trading day has opened. I had to take the dog outside and it was 10 minutes before the trading day opened. So I went ahead and put in my order. (I will tell you about the order in a few minutes). As it turns out the stocks I purchased went STRAIGHT DOWN. No really. On high volume the bottom dropped out. Why did my research not indicate that would be the case? Well, who knows, but had I waited until the market opened I would have seen what was happening and I would not have screwed that one up so much. Two mistakes = big losses… I assume. I wouldn’t know because my stupidity didn’t stop there.

3 – ONLY buy stocks when the market is on an uptrend. How would you know? Well, if you go to Investors.com home page, you will see a section labeled IBD Stock Research Tool there will be a few stocks listed. Under IBD Tools column you can click on the check mark, which will bring up information about that particular stock. Don’t worry about which stock it is, because it doesn’t matter. Below the ‘Performance Within Group’ section is the IBD Stock Checklist. You will see the Composite Rating as well as The General Market information. Under General Market it will indicate one of three scenarios: a) Market trending up, b) Uptrend under pressure, and c) market trending down. Go here before buying stock. Make sure market is trending up. After all, according to research done by IBD, 3/4 of stocks move in the general diction of the market.

So, I made 3 mistakes. Oh, I also bought two different stocks, but both from the same sector – Biomeds. Guess which sector got trashed that day? Yep. It was front page financial news, they got hit so hard. Now, had I purchased when my research said to, I would have made money first then lost it, so I would have been even. Instead, I was down 7% in one day! I bought LCI (7 shares) and LGND (6 shares).

So my first experiment failed, even though my research worked well. I learned some valuable lessons and look forward to sharing my continued research. I bought LCI at $69.42 ($485.94) and $LGND at $75.35 ($452.10) leaving a cash balance sitting in my account of $41.98. Now my account is worth $938.25 which includes nearly $20 in commissions on the trades. Until next time…

(Disclosure: Stocks listed in this post are based on the research of the author but DO NOT constitute investment advice. They are simply the personal opinions of the author based on independent research. Some of the stocks listed may be owned by the author and by The Money Professors. Neither The Money Professors or the individual author of this post are licensed security advisors or brokers.)

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The three authors, Bill Pratt, Mark C. Weitzel, and Len Rhodes, are industry leaders in personal financial education. Together, they have a combined 75 years of experience in banking, economics, and entrepreneurship. Now, they teach thousands of students personal finance concepts and decision making skills, author textbooks and public press books on personal finance, and help schools develop innovative personal finance literacy programs. Recently, they were instrumental in developing a personal financial management certification program for leaders in higher education. The other books in The Money Professor series include The Graduate’s Guide to Life and Money and Extra Credit: The 7 Things Every College Student Needs to Know about Credit, Debt & Ca$h. Their books, lectures, and programs give students, parents, and educators the tools and knowledge to make good financial decisions all their lives.