The Cost Of Overconfidence Is Astounding

“Price is what you pay. Value is what you get.” – Warren Buffett

              My intelligence was validated by my very first investment success (Check it out here). I certainly was on fire. I went off on finding my next mission. Yes, this time I am making a big bet (keep in mind this is a broke student talking).  

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(Source-Yahoo Finance)

              One of my good habits is reading and one of my bad habits is reading the wrong book. I came across a book on investing (Titled, I think, “How to be a millionaire”). Perhaps it was written just for me.

Here is the summary of the book – buy the cheapest penny stock out there and if it goes up a dollar, you are a millionaire.

At that time, the only thing debatable to me was whether I was going to buy a boat or a house with that money.

              My rifle was loaded and I went on penny-stock hunting. Thanks to the Merrill Lynch, they required an access code to trade penny stocks. For this, you needed an electronic device which they will send by mail. I was not ready to wait for a few days. I wanted to be a millionaire the next day. So I decided to buy Urban One Inc Class D (NASDAQ: UONEK), the closest thing to a penny stock. It was selling for around a dollar per share. Till this day, I do not know what that company does nor their financial situations. The only criteria I had was its listing price and I picked the first one from the bottom. I bought and sold gazillions of time for months with a few hundred dollars. The stock price did what it supposed to do. It went up and down. My excitement is the only thing going up all the time.

(Source-Google Finance)

              I sold my car, the only asset I had, for six grand (I was moving places for a new job). And, guess what? I bought more ROIAK with that amount. Contrary to my expectation, the stock price started its journey towards the bottom. Towards pennies. I was restless. Sound sleep was a thing of the past for me. I borrowed three thousand from the credit card promotional offer and bought more of it hoping that I will recover the loss from my earlier trade. The sliding of the price continued.

              I checked my investment every few minutes and I am not even exaggerating. I did not like the red color. After a few years of torture, my loss aversion side of the human aspect kicked in and I sold all of it. I lost one-third of my total investment.

The only good thing about this trade is I lost merely three thousand dollars.

This sounds trivial to Wall Street. We have no shortage of people and institutions losing millions and billions in bad investment.

              More than the actual amount, my biggest loss was the opportunity cost. I had the opportunity to earn a handsome amount but all I did was lost my borrowed money.

I was an expert on buying high and selling low.

Had I waited a year or so I could have more than quadrupled my investment. My regret of not holding it a little longer continue till this day, not to mention buying it in the first place.    

Disclaimer – No position.

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