… Tech Stocks. And how it almost worked out!
With the recent updates on my first year, I managed to earn a paltry 20.4% return on my first four stock picks. Not bad. But then nothing to crow about … would you if you missed out on this return?
In this article, you will learn about:
my stock madness
5 lessons on purchasing stock
The Madness of DELL
But 1998 was the year I fell in love with DELL, and the madness spilled over into other tech stock. Though 1998 wasn’t the crazy year, and DELL was a very reasonable stock to buy in 1998, the following year began my decent into stock madness.
So DELL’s transactions
I bought DELL three times and sold it twice. There were no dividends at all, just buckets of excitement and despair as we rode it all the way to pre-split $70, then all the way down.
I bought an extra 22 shares and sold them in 1999 to cap about a 17% profit in 5 months on the secondary purchase. Fortunately, I did this because it helped to minimize the overall losses on owning DELL to just $44.95 + stock purchase/sale costs.
After I sold I sold the remaining shares in 2007 at my get out price of $24.98… the stock price just kept heading downwards until DELL was bought out by Michael DELL at $13.65. During my ownership period, DELL’s price traded all over the place. ALL over the place, from $10 or less to nearly $50 a piece (after 2:1 split).
DELL is still around today, but it is privately held. And we don’t really know how profitable DELL is now but that like many large behemoths they are pushing into digital security and computing services.
Though DELL damaged my portfolio, it was what followed that caused the most damage. Yes, 1998 isn’t done yet.
Lessons Learned: DELLightful
Though I wasn’t financially too much in the hole for stock. Perhaps, around $120 all told. I did take away some lessons.
1. Don’t fall in love with the stock
The gyrations made things heady on the Stock Boards as the longs came out and talked up the stock on each plunge as a new buying point, a chance to drop your entry point, or (even) ‘it’s sale time!’
You have to remain clear headed about why you got into the stock, what expectations for, what your entry/exit points are… and don’t worry about the noise. It’s just noise, and it’s as likely to be WRONG as it is right.
2. Low margins >>> Low profits >>> Shorter horizons
It doesn’t matter how much the stock is rising, the computer business had already morphed into a commodity business by the late 90’s, even before the Chinese companies started manufacturing PCs. The margins are VERY slim compared to Apple or MSFT or other companies.
3. If you’re #1, where can you go now?
IF you’re already no. 1, where else can you go? Even though DELL was already at the top of its game, and it wasn’t number 1, did you really expect it to go to the moon? I know I did. That’s the infatuation phase when you can see no wrong.
But put your head on and think for yourself. So it went up another 30%, how likely would it be to jump another 100% from the entry point? If it can’t, then why are you holding it? Perhaps it’s for dividends… but DELL didn’t pay any.
4. Choose your entry price
As I hinted earlier, you need to determine the value of the company to you, and decide on what offers you a margin of safety. If you purchase today, will there be sufficient safety for the price… or it will it drop through the paper bag?
For owning DELL, I could have chosen a more aggressive entry price, and there was a lot of opportunity for purchasing DELL at a lower even after 1999. The price collapsed to $6 before rising to the $20’s. Plenty of space to make 300% or 400% profit.
5. Choose your exit price
Hinted before, but choosing an exit price based on your valuation is the sensible course of action. In other words, at some point the stock price will increase beyond your original paramaters. Are the new prices and metrics in keeping with the valuations? Did the stock price break your exit price range?
If yes, perhaps there is an opportunity to buy more if the company’s in good shape. If there is uncertainty, you should look at selling because nothing much has changed except the price. You might be able to buy back in when it’s cheaper again.
And it’s those lessons that would have prevented me getting in on the final purchase for 1998: ATHM. Does anyone remember the frenzy of this stock? Well, I should really include it here because I did purchase it in 1998. It really belongs with my later purchases. Stay tuned…