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My 90% Dip In The Value Of One Of My Stocks

In the past I was lucky, during the tech bubble  pop, I was lucky enough to be in ebay.  Not only did ebay hold it share price, it double in the 3 years that I had it.  I practically felt like a genius (Note, I not longer own ebay)!

With the “Great Recession“, things were different…  I had some stocks that were in the high beta category.  High beta stocks are stocks that can have wild fluctuations in share price based on the general stock market direction.  One of my worse performing stock dropped 90% in price in 2008!  Just to illustrate what a huge drop that is, if I had $1,000 invested prior to the “Great Recession”, the value of my investment would only be $100!  Ouch!!!  when I realized this, I started to get sick to my stomach, but then I remembered that most of my portfolio is invested in mutual fund and other more stable stocks, not to mention the equity in my house (which took a much smaller hit).

Since my portfolio was well diversified (including asset class), the market downturn didn’t make me worry as much as it probably did with others.  The key is to just have a small percentage of your investment in such high beta stocks (also called speculative stocks) like I talked about in the previous paragraph!  By having asset class diversification, I was able to keep my cool and leave my investments alone so they could recover!  All my accounts are positive again.  My high beta stock is only down 60% and recovering quickly!  I still might use it for tax purposes though instead of letting it fully recover 🙂

How is your investment portfolio diversified?  Do you have all of your eggs in one or many baskets?

-MR

14 Responses to My 90% Dip In The Value Of One Of My Stocks

  1. It’s funny, during the tech bubble, I was a genius too! Then I lost all my intelligence, and some cash.

    I have had my share of dumb trades. I used to buy some stocks as almost a hobby, but 90 percent of my money is in mutual funds and savings, so if I lose a little in stocks, I am ok. Well not ok with it, but we won’t go broke.

    • I was kicking myself during the bubble, some of my workmates had big positions is tech stocks with no earnings, but I chickened out and went with ebay.

      I agree 10% is my treshold for speculative stock also! I do hold some stable blue chip type of stocks too.

  2. Index funds, buy and hold, baby! Wait out that recession. I don’t put any short term money into stocks (except sometimes in emergency situations, like underestimating closing costs and moving costs and a paycheck that was supposed to cover them being delayed, I have sold losers that my father bought when he was managing my portfolio).

    This last year I went and sold off most of my individual stocks and bought indexes with them. I had been avoiding doing so because of the tax hassles, but then a biotech firm went completely out of business and that was a tax hassle and AOL and Time Warner did some weird tangos that was also a tax hassle, so I decided that one year of tax hassle of our choosing was better than future tax hassles that someone else chose. I will probably regret this decision in April.

    I’m keeping one single stock because I love it, even though I hated it when it went bankrupt. But since then it’s provided a steady stream of income, which is really neat. I did undrip it.

    Losers mean a lower tax bill, which is something… Not so good on a percentage basis but always nice at tax time.

    • Yeah, I agree, my 401k is almost entirely mutual funds (we don’t have etfs as options, be we can trade stock if we want, I choose not to).

      I thought I would sell my stock that dipped so much soon, but it really starting to come back! It’s good good number, people just overreacted on it.

  3. With regard to paper assets, we’re very diversified with both the types of fund (no single stock) and among asset classes. I tried a different approach initially (years ago) but didn’t have the risk tolerance for the volatility.

    • Me too! I find that I sleep pretty well at night (when I actually try to sleep). Life is good for us right now!

      It does sounds like you and I are on similar paths, it’s good to have company 🙂

  4. Our main retirement portfolio is well diversified, but our personal investments (not much) is down the drains. We own citibank shares… need I say more 😛

    We do have to sell some of my husbands company stock purchase plan shares and diversify, we own way more of his company stock than I would like.

    • I feel your pain! I bought BAC on the way down, but it kept going down… Luckily I doubled down even farther and it recovered enough so that it broke even. Shortly there after I sold it, making a razor thin profit off of it overall…

  5. You need to read more of the famous investors. Most have concentrated their holdings “let the winners run” and cutting losses early. Diversification works at holding a steady tiller, not growth.

    Buffett calls it “diworsification” – people pull money out of good stocks to put them into other stocks that don’t do as well. Or think that holding six S&P tracker mutual funds as being ‘diversified’.

    You have to have more discipline to keep your losses small. Recovering from a 90% drop takes a 900% growth in the stock price just to break even! How many years will that take for a quality stock (that wouldn’t have fallen that far anyway)?

    .

    • Oh, trust me I’ve read my share of financial books…

      “Too much diversification” is a funny phrase. What is too much diversification? 10 stocks, 100 stocks, 1000 stocks?

      I have less than 10 stocks, and all have merit. Even Mr. Buffett (my financial hero #2) has more than 10 stocks!

      I admit, I sortof but not entirely, violated Mr. Buffett’s rule 1 @ 2 (both are don’t lose money) but my losses are paper losses, and they are coming back with vengence! All are coming back because they all had good financials, a great story, and a moat…

      For an answer to your last statement…, not long :). It’s a high beta stock so sometime it’s opposite that old saying ‘what goes up must come down”, and in my case “what comes down sometimes goes back up, and quickly” 🙂 For the current date, I just need this stock to double in value and I will be at break even. If all goes well I expect that to be sometime in the middle or first quarter of next year…

  6. Every investor has losses. It’s a good idea to focus on your portfolio as a whole, and be widely diversified (as you remembered). Keeping an even disposition and remaining diversified will help with the inevitable ups and downs of the market.