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I participated in the technology-stocks bubble and bust of 1999-2000, and in my small way I contributed to it.
I discovered investing when a lot of other people did too, in the rising tide of tech stock valuations. Around that time I had work for which I was earning money at an unaccustomed level. I couldn't spend it all.
Then I discovered investing, and it became a fascination. I tried to learn what I could about the core ideas. I did learn a lot, in a conceptual vein. In practice, though, this first attempt included some key examples of what not to do.
I did enter the arena convinced that real investing ought to be done with a long-term perspective. This is true for several reasons.
One reason that good investing is best done with long-term goals is the capital gains tax. On sale of securities whose value has risen, one must pay tax. In the U.S., the tax on stocks is (or was) higher if you sell within a year of purchase.
Another reason that it's best to buy-and-hold is that a stock purchase ought to involve careful thought. It's not feasible to get any kind of quality grasp on a great number of companies. (My "grasp" on companies never extended to the understanding of financial reports nor anything so technical — it was more intuitive and based somewhat on interpretation of the various inputs of an online community of investors.)
The main reason that the science of investing ought to focus on the long view is in the significance of the principle of compounding interest. Compounding interest is what builds wealth from a modest investment; and it works its magic in the long term. The difference between a few percentage points' return over many years is profound — nothing less. A simple experiment with a compound-growth calculator can show that this is true.
That's the theory behind it, and it's good science.
I made a few mistakes. Best, now, to call them learning experiences. But classic mistakes they were.
One mistake I made is that I did not diversify. My interest was purely in the revolutionary new businesses, the technology companies. Internet infrastructure, mostly — networking hardware and internet software companies. It was heady stuff back in those days, and the valuations were astronomical, but the prices kept going up. It was generally expected that these companies were going to make a lot of money. Then was the time to get in. Buy high and sell higher.
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My stocks aren't worth sh*t anymore. Analysts who were pumping these issues at higher levels are downgrading on valuation. Motherf*cking b*stards.— 21 November 2000, Amsterdam |
And that was my other big mistake: I believed the hype. It was exciting to think about, this digital revolution and all the exciting new possibilities, and all the money I was going to make. I admit it. I fell for that.
Start with nothing, end with nothing, what have you lost? Nothing. I was fortunate, really, in my naïveté, that I sold those issues and transfered the money to my bank account, and spent that money in ways that were good for me. Well, I could have sold at the peak, Spring of 2000, and had much more money — but that is hindsight, and not fair self-criticism. Who knew? Some warned, but nobody knew.
That summer I moved to Amsterdam, where I lived for about a half-year. I didn't work much in Amsterdam. During this period, and in the early days of Spain, I was slowly selling off my stocks. This was in the Autumn of 2000 and early days of 2001, I remind any students of the history of the Nasdaq. My tech stocks were sinking in value as I was selling them, and some of the issues would proceed to sink much, much further — to relative insignificance — after I had finished gutting my account.
En fin, the value of the money I took out of my good old Charles Schwab account was just about equal to the money I put into it. That wasn't my intention, naturally. But it's certainly nothing to cry about. I was anguished, it's true, when just before I left the States I saw the value of my holdings decline sharply. (There was one day — when I was on the train from Colorado to Oregon — that the Nazdaq index declined more than 400 points, about a fifth of its total value.) And I had some shitty days in Amsterdam worrying about it, too. (It is a mistake to have money in stocks with short-term needs upon that money.) But in the end, I'd say I came out well. Relatively speaking, of course.
In any case, you live and learn. Time itself will tell whether or not I've learned.
— 17 November, 2002, Kilkenny, Ireland
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