Three Key Takeaways From the Worst Trade of My Career

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At a recent talk I gave, I was asked about the worst trade I ever made and what I learned from it.

I learned a heck of a lot, let me tell you.

Back during the dot-com boom, nearly two decades ago when I was just three years into my career, I bought shares of an online sports video company called Quokka.

Don’t bother looking it up. It doesn’t exist anymore.

It streamed live niche sporting events and signed a deal to broadcast Olympic sports like kayaking and others that wouldn’t be shown on network television.

It had cool technology, but as a business, it was garbage.

This was also the time before everyone had broadband. Almost everyone had dial-up internet. So watching video was difficult.

I knew that. But like so many people during those go-go days of the internet, I planned on owning the shares just for a little while and then selling for a nice profit.

The catalyst was going to be the Olympics. When Quokka started getting media coverage for broadcasting events, the stock would surely shoot higher and I’d make a bundle.

I bought more stock than I should have. I couldn’t sleep – I was so worried about the position.

The stock quickly doubled. I told my wife I wanted to take half off the table and play with the house’s money, as I realized I had bought too much in the first place and wanted to lower my risk.

She wanted to let it ride. We were saving for a house, and if the stock continued higher, we may have had enough for a down payment.

We disagreed for a while until she challenged my manhood…

So you know how this ended up. I held the stock.

I had bought Quokka at $7. I had wanted to sell half at $15. When it hit $12, I said, “When it gets back to $15, I’m selling.”

At $10, I said, “When it goes back up to $12, I’m selling.”

At $7, where I was back at breakeven, I told myself, “I have to make some kind of profit, so I’ll dump it at $8.”

At $5, I said, “If I get back to breakeven, I’m out.” At $3, I said, “$5 sounds great.”

I rode it to zero.

What did I learn from this?

  1. Don’t let a trade become an investment. I had a specific goal in mind: a short-term trade for quick profits. Then I ended up holding the stock for much longer.Once I realized I was wrong, I should have gotten out quickly. A trailing stop would have done the job nicely, allowing me to participate in further upside but getting me out of the trade after a decline.
  2. Don’t take on more risk than you can handle. I bought too much stock. No investment should cause you so much stress that you lose sleep.

  3. If you’re married, make decisions together. You both don’t have to be stock pickers, but big-picture things should be discussed. One partner should not be uncomfortable with an investment decision. Financial issues cause a lot of stress in marriages, especially if one partner thinks they are taking too much risk.

Understanding what each partner is comfortable with ahead of time will help alleviate some of that stress.

I wasn’t embarrassed to share that story with my colleagues or with you. Like every investor before me, I had to pay tuition to learn valuable lessons.

I just wish the tuition for this particular lesson hadn’t been so expensive…

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