Friday, April 28, 2006

Cisco @ 73: An Expensive Lesson Learned

During the late 1990s, I was living in the Bay Area during the dot.com boom and was saturated with news about how much money people were making on the stock market. I knew nothing about markets/investing.... I was in school with no income other than my student loans. But I didn't want to miss out. So despite not having much money, I couldn't pass on the opportunity for "easy money". So I bought $1000 worth of Cisco @ 73/share March 2000 (just before the bottom-dropped out of the market) . Did I even know what products Cisco made? No, something about routers or switches or some high-tech-type product... I just knew they had cool commercials ("Are you ready?"), were "tech" and thus as good as gold. When people start buying stocks without doing sufficient research, and prices continue to go up despite poor financials on that company, you are then investing in a speculative market or as Alan Greenspan called Irrational Exuberance.

I subsequently watched the price go down... and down... and down... and bought a few more shares to try to recoup some losses... but watched it go down to it's nadir of $8.00/share in October 2003.

In the interim, I reeducated myself, got into mutual funds, and haven't looked back.

I finally sold all my shares at around $20 last month because I was tired of
owning a single stock that was going nowhere despite the bull market of 2003-2006.

6 years later, after having "reeducated" myself about personal finance and investing, I must say that buying Cisco was one of the best things I could have done early in my investing experience. Although I lost ~70% of my initial investment, it forced me to read and learn more about investing. Now, I tend to agree with the opinions of William Bernstein, John Bogle, David Swensen to name a few.

Lessons learned:
1)never buy a single stock
2)don't overestimate your stock-picking ability
3)diversify
4)know when to sell
5)learn from your mistakes
6)buy low, sell high (easiest to do by dollar-cost-averaging and rebalancing appropriately)
7)research before you commit money to something
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