Thursday, November 1, 2007

Breaking Rule # 1 of Investing

Rule 1 of Investing

Rule # 1 is - don't lose the money but that is exactly what happens when you realize a loss. With a paper loss you hope and pray that the company will turn around, there will be a miracle, this is an interim setback ...

I am still reeling from the disaster of the bust. Some investments (or more specifically speculative excesses) unwound themselves, some I have been divesting ever since. Some I am still having a hard time letting go but then you reach a point where you see no future for the stock or company.

I have been holding on to some Qwest (Q) communication stock, hoping that the internet revolution will finally happen and I can recoup some of my losses. The internet revolution is happening but I am not reaping any of the gains. The gains are going to the investors of Research in Motion (RIM), Apple (AAPL), Google (GOOG) and IBM (IBM). These are the growth companies of today - achieving success by innovating, marketing and meeting the needs of today. Obviously there are many more companies that are in the growth quadrant - these are just a few technology companies currently making headlines.

To get away from the emotion and unhealthy attachment to what did not work and focus on the future stars I asked myself these questions

To Close A Position
  • Why did I invest in this company?
    The reasons why I invested in Qwest are not very sound. CLOSE POSITION.
  • Do I understand the business model and growth opportunities?
    Telecommunications with limited growth and no sound strategy in place. CLOSE POSITION.
  • Are the numbers sound?
    No, recently came out of the red with limited growth potential. CLOSE POSITION.
  • Is the industry or sector on a rebound?
  • Is there any reason why this company/stock will rebound?
So time to cut loose a loser and get on with what has some potential to make me money. Rule # 1 has been broken but sometimes you have to let bygones be bygones.

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