The unofficial motto of Wall Street is "buy low, sell high," but as more and more middle-class Americans buy into the markets as Robinhood led the way into the world of commission-free trading, many main street investors have been alienated from this idea.
Regular investors have been led into buying as stocks go up, leading to speculative bubbles, take Tesla recently making new ground into the $900 range or the Bitcoin craze of 2018. While these stories are shocking, they're only one half of the puzzle. The other half I like to call "Lose-itis", the fear of losing.
Many regular investors have been led into believing the fantasy of "buy low sell high" to an extreme. And as YouTubers try to sell courses advertising that they've never lost on a stock, many investors are worried about losing. But we as a community need to realize something: sometimes losing is OK.
On 29 January 2020, the New York Times reported that Warren Buffet would completely divest Berkshire Hathaway from newspapers. Warren Buffet is famous for having been extremely slow to invest in technology, claiming he "won't invest in what he doesn't understand" and this led to him losing out on major growth opportunities.
One thing that practically none of the articles cover? Buffet's newspaper losses. After some thorough digging, however, it's revealed in an article from Business Insider that Berkshire Hathaway's losses from the newspaper business amount to a staggering $204,000,000, a near 60% loss for the company.
What the articles aren't covering is the basic lesson that can be learned from this ordeal: selling for a loss isn't always bad. Unfortunately, that doesn't get as many clicks as the gains and losses that people make from speculation, for instance in Tesla and Bitcoin.
What most investors won't tell you is how much they've lost. In fact, most professional investors don't beat the market. In fact, the market often beats them by a significant degree. Much of this loss comes from buying individual stocks that lose much of their market value. In my specific case, I've learned many lessons from buying individual stocks.
For instance, I used to watch a YouTuber who recommended buying shares of Portola Pharmaceuticals (NASDAQ:PTLA) at $50 a share. I bought a few shares and unfortunately, whenever I check my Charles Schwab account, I see a 72.98% loss for that investment.
I've nicknamed this incident the "Portola Disaster".
I had many opportunities for selling, for instance when their drug wasn't approved by the FDA (that the YouTuber said was 99% likely to get approved), but I didn't listen. When I saw red, I told myself foolishly "if I just wait a year" or "a new CEO will help".
One of the lessons I learned from this was to not listen to YouTubers trying to sell courses on how they made 1000% returns on XYZ, Inc. or to buy some specific high-risk pharma stock, but now, reflecting on it, I think my biggest lesson is simply to sell when hopes for a company's future are lost.
Another example of mine is Dropbox, Inc. (NasdaqGS:DBX) and Box, Inc. (NYSE:BOX) stock. When I bought them, they were the hottest new IPOs from Silicon Valley. I bought Roku and Square stock at their IPOs and saw returns of over 100%, and I thought that if I bought every big, hot IPO, I would soon be a millionaire.
Like the Portola Disaster, I saw the red after a while and kept thinking, "If I hold onto it, it will turn green", but that never happened. After the first earnings report, I should have seen their gigantic PE and sold, but no.
Of course, like the Portola Disaster, I should have seen the warning signs and have learned some lessons about buying the hottest IPOs, but I've also learned about being scared of selling at a loss.
Like these three stocks, I've also seen huge losses where, if I had learned this lesson before, might not have happened, like in the case of U.S. Steel (NYSE:X) where I lost over 50% of my investment.
These lessons are being reflected time and time again in companies like Casper (NYSE:CSPR), which has lost a significant percentage of its Market Cap since IPO. Now the current investors are holding onto an investment that's turning into nothing fast.
I hope that this article has allowed you to learn from my mistakes so you can make better investing choices.