Advisor Roundtable: Your First Investment

For the first time
Lovin’ blind we dove right in
For the first time
We gave everything and then
For the first time
We moved on with our lives

— Kenny Chesney

Do you remember your first time? The experience is filled with feelings of anticipation, excitement, hope, and anxiety. Usually, it ends in disappointment and a loss of innocence, as you realize that reality is never as good as the expectation. But there is also a sense of relief that you got through it and know that it will get better with practice.

I’ll never forget my first time investing.  And neither have your Investing Daily’s investment experts. Whatever initial missteps these wizards of wealth may have experienced are history; they have since moved on with their lives and honed their investment skills to perfection.

As you may have guessed, the question we posed was the following:

What was your first investment and what did you learn from the experience?

Some of the experts made money, some lost money, and some don’t remember. But that’s not the point. What’s important is that they learned from the experience and made future investment successes more likely. Read on to find out what they learned:

Roger Conrad

My first two purchases of individual stocks were made at roughly the same time. I bought some shares of Texaco through its dividend reinvestment plan and opened a brokerage account to buy shares of a gold mining company called Galactic Resources.

For the first year or so, it was clear to me that Galactic was by far the better investment, as it seemed to levitate ever-higher while Texaco moved only very slowly. Then came the crash of 1987 and the subsequent evaporation of the gold share market. On top of that, Galactic became tied down in legal matters related to its mining methods, ultimately ending up in bankruptcy. I managed to sell out in the neighborhood of where I got in, having learned a valuable lesson about taking profits on speculations.

Texaco, I’m happy to say, has been a much different story, building value with every quarterly dividend. It’s now part of super-oil Chevron (NYSE: CVX) and my account has grown roughly six-fold from my initial investment. The lesson is good businesses keep building wealth. I may indeed sell my Chevron some day. But as long as they continue to put up good business numbers, I’ll look forward to bigger gains ahead.

Elliott Gue

My first investments were in fairly conservative stocks such as Bell Atlantic, now part of Verizon (NYSE: VZ) that I acquired as long-term holdings.

But, one of my first aggressive positions was in data storage giant EMC (NYSE: EMC). It was the summer of 1997 and EMC was the first stock I ever purchased using margin to increase my position; I bought shares at a little over $50 per share, set a stop about 10 percent under my entry point and watched the stock every day like a hawk. EMC traded sideways for about a month, never hitting my stop but showing enough volatility to make me nervous about my margined position. By the end of the summer, EMC broke higher and traded up about 20 percent above my entry point and I immediately took a profit.

Although that seemed like a great trade, I went on to watch EMC rally in an almost uninterrupted fashion through to the end of the decade. If I’d simply held on, I would have multiplied my initial investment more than 10-fold.  What I learned is that you must always be careful about the size of your positions; if you take on too much risk, you’re bound to panic at the first sign of a dip or take a profit too early just to reduce anxiety.

Yiannis Mostrous

The first investment I ever made was with my senior high school investment club. We bought shares of the National Bank of Greece (NYSE: NBG). That was in 1987, and I do not remember the outcome of that investment.

What I do remember was that it was quite time consuming to open the brokerage account and transfer money from the bank to the broker. The order was placed in the broker’s office and it took some time to be executed. Actually, we did not know the specific price at which we bought the shares until after the stock market closed at 2:30 in the afternoon.

As it was my first interaction with the market, I did not really learn anything. I was, however, very fascinated with this new world of brokers, markets and investing and was very impressed with the lingo people in that office used when talking about the market.

David Dittman

The first stock I ever picked was IBM (NYSE: IBM), way back in the spring of 1983 as part of a unit on the stock market put together by my sixth-grade math teacher, Mr. Leonard McKain, who also happened to be my neighbor.

I was fortunate enough to be able to hitch a ride into school every morning with Mr. McKain, who also hired me during the summer to take care of his lawn when he went on his annual fishing vacation. Another influential elder, my grandfather, a scientist obsessed with the explosive potential of computing, was pushing me to know as much about “binary code” as possible, but it merely cluttered my mind, which was more focused on sports and Calvin and Hobbes.

But something stuck. I discovered that there was more to the Los Angeles Times than crossword puzzles, game stories and sportswriter Jim Murray. Mr. McKain had my class track the performance of our chosen stock over a course of many weeks, forcing me into the back pages of the business section. We were hand-making our own charts, and we didn’t even know it.

I later used part of the money Mr. McKain paid me to buy 10 shares of IBM, which at that time was already “Big Blue” but was only on the cusp of the “information revolution” more characteristic of the next decade. I realized a modest return when I sold my shares in the summer of 1985 in order to purchase a surfboard and a wetsuit.

The lesson for me was simple: work hard, get paid, invest your earnings, realize financial goals and pursue life dreams.

Jim Fink

I grew up in Northampton, Massachusetts, home of SmithCollege where my father was a professor.  Our local bank was Northampton Institution for Savings (NIS) and it was where I had my first passbook savings account. In 1986, the thrift decided to convert from its status as a mutual bank (i.e., owned by depositors) to a public corporation. By this time, my dad was a member of the bank’s board of directors and he got me a summer job working on the stock conversion team, which notified all depositors of their right to buy into the initial public offering (IPO) of stock. The IPO occurred in October 1986 at a price of $9 per share and I, as a depositor, bought 500 shares, which amounted to my entire life savings at the time.  

My first mistake was not diversifying; I put all my eggs in one basket.  Stupid, stupid, stupid. But, in my defense, NIS was the largest bank in Northampton and was a public institution, having been around for more than 80 years. If you had asked anyone, they would have told you it was a rock-solid investment.

Oh, boy, this is bringing back bad memories. Anyway, within six months of going public, the stock shot up to $16. My father’s secretary decided to sell her stock for a 70% profit and I thought she was nuts. Merrill Lynch, the underwriter of the IPO, wrote a research report saying the bank was worth $23, not to mention being a prime takeover target for one of the large New England banks. I thought to myself, why should I sell at $16 and leave $7 or more on the table? Furthermore, I read in Fortune Magazine that a young Seth Klarman, risk-averse value investor extraordinaire, picked NIS as one of his favorite bank stocks. Lastly, CEO Dick Covell kept buying shares and I thought as an insider he must have known that the bank was doing well.

Long story short, the bank, which had been conservatively run for its entire 80-plus year existence, suddenly started expanding like crazy, buying other banks and issuing questionable loans to anyone who asked. I guess receiving tens of millions of dollars in IPO proceeds, as well as facing the pressures of satisfying public shareholders for the first time, was too much for our local-yokel bank management to handle responsibly. With the recession of 1990, all of these loans went bad and the bank failed in 1992. It turns out the bank was not just the victim of a bad economy, but had a criminal in charge of the loan department. Yes, I held my stock all the way down. Thanks for asking. You can read the whole sad story here.

Lessons learned besides the importance of diversification? First, don’t get sentimental and marry a stock. I let the fact that it was my hometown bank with my dad on the board of directors influence my thinking. Second, you should at least consider selling half your position when a stock skyrockets 75% in six months. Third, give no weight to analyst reports issued by the underwriter of an IPO – it’s their job to boost the stock. Fourth, don’t rely solely on the opinion of famous investors like Seth Klarman without doing your own analysis. Fifth, don’t ride a stock down to zero because you are ashamed to take a loss and admit you were wrong. Lastly, although insider buying is normally a good sign, ignore it when it involves bank insiders because they don’t know loans are going bad until it’s too late.

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