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What I Learned Losing 50% – It's Happening Again NowBy
Friday, March 21, 2014
My friend, I fully admit it... I make mistakes investing, just like everyone else.
People get the impression that because I'm a well-known investment writer I somehow don't make mistakes in the markets. That's crazy!
Everyone makes investment mistakes... The more important factor is how you handle them. You must do two things:
Sounds easy... But it's harder than it sounds. Today, I'll share with you my biggest mistake, and what I learned from it.
It's important today because what happened then is happening again today. I want you to learn from my mistake, so you won't make it too.
Here's the story...
On June 17, 2004, Vladimir Putin said "[we] aren't interested in seeing Yukos go bankrupt,"
My big mistake was I believed him! I recommended the stock! I wrote:
"Until Putin claimed he didn't want to push Yukos into bankruptcy, the oil giant was either a zero or a home run. Now the prospect of a zero has been taken away."
Yukos, if you don't know, was the Russian oil company that – at the time I wrote the story – had more oil than Exxon or BP. But it was dirt – I mean DIRT – cheap... trading like it was going out of business.
Our upside potential was easily hundreds of percent. And our downside risk had been taken away. I said "we know what we need to know... Putin won't send the company into bankruptcy."
What a fool I was! I took a politician at his word. That was the crux of my investment thesis.
Putin forced Yukos to go bankrupt not long after. The assets owned by Yukos were sold for next-to-nothing to oil companies controlled by the Russian government.
The only silver lining here is that I used a trailing stop when I entered the trade – a 50% trailing stop! I don't remember exactly what we ended up losing on the trade – but I'm sure it was darn close to 50%!
It was the worst trade of my career, in my opinion. I say this because this trade really sticks with me as the one where I failed my readers the most. (This isn't the biggest loser of my career... I recommended a basket of three tiny gold stocks once. I said buy all three. One of the three crashed more than Yukos, but the other two went up by triple-digits. One went up 995%. I don't feel I failed my readers on that one.)
This week, Vladimir Putin said "I have no intention of invading other regions of Ukraine."
The casual observer might think, "That's nice of him – he's done with his invading for now."
But what do you think?
Isn't Putin's statement similar to what he said about Yukos in 2004?
The most-likely goal back in 2004 for Putin was to get the international community off his back. I'm guessing he has the same goal today.
The general lesson today is simple.
Will Putin invade "other regions of Ukraine"? I don't know... But I do know enough – after getting stung badly – to not take him at his word. Trust me on this one...
Please, be extremely careful if you're going to use a promise from a politician as the crux of your investment thesis. And learn from your investment mistakes! This one was from 10 years ago... And it still stings today...
Good investing,
Further Reading:
Yesterday, Mark Ford shared "the worst mistake retirees make." He says it's a common mistake... But he's never heard it mentioned by retirement experts... or in retirement books... Find out what it is here.
"My friend Mark LoPresti caught me..." Steve writes. Steve was boasting about a recent trade, but Mark asked just the right question... And Steve realized that he'd forgotten one of the crucial parts of a good trade... Read the full story here.
Market NotesLOW INTEREST RATES ARE FUELING THIS UPTREND Utilities are typically boring businesses. These companies handle one of our basic necessities – keeping the electricity on. It's a highly-regulated industry, since the government doesn't want folks getting gouged on their monthly bills. As a result, you won't see these companies reporting huge earnings results. This means utility stocks are usually a safe, low-growth corner of the stock market. Investors get to collect a big chunk of the companies' profits in the form of dividends.
When interest rates are low, however... those dividends become a lot more attractive. Right now, utilities are paying close to a 4% dividend yield – almost a full percent above 10-year interest rates (based on Treasury bonds). And it's unlikely that rates will go up within the next couple years. That puts a major "bid" under utility stocks.
Below, you can see the steady uptrend in the utility-sector fund XLU – a "one click" way to own a basket of utility stocks. Over the past few years, the fund has steadily pushed higher. Today, it's sitting just off a new all-time high. It's a clear sign of the steady demand from income-oriented investors. The longer interest rates stay near record lows, the longer this uptrend will keep going.
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