"The company's called Symbol Technologies and they make bar code scanners. You definitely need to buy their stock!"
That was the advice given to me from my friend Mike. And I took it. I bought $5,000 shares of Symbol Technologies. And you know what? He was right. Symbol's a great company and at the time - this was the late 1990's - they were an up-and-comer in the nascent world of bar code scanners. Since that time the stock has gone up by multiples. Unfortunately, I never shared in those gains. I dumped the stock six months after I bought it. For a loss. Why?
The stock pretty much sat there at the same price day in and day out for a few months. Until one day when I noticed it was mentioned in the Wall Street Journal. Interested to see why this small (yet growing), publicly-held company was in the news I flipped to the story and found out that just the day before Symbol announced a disappointing sales forecast and its stock dropped more than 30 percent. Hey, these things happen. But wow, that really spooked me. So instead of holding on to it and weathering the storm I just freaked. And bailed. I took my losses and licked my wounds.
Do you blame me? I think a lot of people would’ve done the same. I don’t want to blame Mike for this. I didn't just buy Symbol's stock on his advice. I had done my research. I read the analysts’ reports. I looked at the company's previous SEC filings. I mean, c'mon: I'm a 33-year-old certified public accountant, right? I'm smart right? Well, not so much.
My mistake was that I should never have listened to Mike. His stock tip wasn’t a bad one But the advice was bad for me. It was bad because he was telling me to buy a single stock. I learned that most non-Wall Street civilians like me should avoid doing that. Why?
It's because the market is driven by large, institutional investors who have close relationships with the companies they invest in. They are much more versed in what's going on and what's going to happen then a little guy like me on the outside. Sure, there are safeguards that try and protect the little guy. But the reality is that big investors have more resources and more information than individual investors. When earnings are released or news is made public the big investors immediately know and can buy (or in my case sell, sell, sell) before the rest of the market even wakes up. That's what happened to me. I didn't even know about Symbol's news until 24 hours after it happened - a lifetime in the world of finance.
Now when people recommend a stock to me I politely beg off. For me, it’s bad advice. It's no less of a risk than a roulette bet in Vegas. I don't have anywhere near the kind of information I need to make an intelligent decision. All I'm doing is just taking a big gamble. For individuals and business people whose business isn't in the financial markets like me I've learned to hand my money over to professionals who are. Sure, I pay their fees. But it's worth it, because that's what they do. And it isn't what I do.
Mike eventually made a killing on that Symbol stock purchase. But it was luck, not skill or financial acumen. Making decisions that way is not a good way to do business.