x Abu Dhabi, UAEMonday 24 July 2017

For money and love

My financial mistake With $8,000 to put in the stock market, this eager investor went with his head rather than listening to his heart and bought WorldCom. The decision has cost him $180,000, so far...

Illustration by Rahul for The National
Illustration by Rahul for The National

Mistakes are often difficult to admit to, and I have found that many people with whom I have discussed mistakes feel that admitting them makes one seem weak in the eyes of others. But I have learned the most from those - be they colleagues, friends or strangers - who have spoken of their missteps and learned from them, then helped others by imparting the lessons they gathered from the bad decisions. This is my lesson to you.

In September of 1998 I had an extra US$8,000 (Dh29,388) that I wanted to put in the stock market. I was fully aware that a maxim of investing is that one should use one's head, not one's emotions, when making a decision about purchasing shares in a company. For instance, at the time I owned Walmart and General Electric, and I bought them because I knew the companies' markets and was convinced their services and products appealed to large and diverse demographics. People always need toothpaste and milk, and companies are always buying and replacing generators and turbines.

I wanted to invest in a "new" stock, an Enron or WorldCom, to get in on all the excitement being generated by Jack Grubman, the star analyst at Salomon Smith Barney, and other wise men. WorldCom was a successful and rapidly growing telecommunications giant that was the toast of Wall Street. So I read all I could about the company, including countless analyst reports. It seems that it was a foolproof investment; indeed, the pension plans of New York and California had bought shares in the Mississipi-based company by the millions, and the two gentlemen who ran the funds for those states at the time were respected in the industry.

So, I was confident I was using my investor's head, having conducted all the due dilligence required of anyone buying shares in a fairly new company. And I had no concerns about putting the entire $8,000 in one stock, which at the time was valued around $50 a share, because my portfolio was fully diversified. But there was one problem, and it was based in Cupertino, California, far away from my Manhattan home. You see, my heart was invested in in Apple. I am a fan of Steve Jobs and Apple, have been for a long time. My first computer was a Macintosh, and I loved it. Sure, I had recently been through a vexing experience with an Apple Performa desktop, but I reasoned that the defective model was designed after Mr Jobs was forced to leave the company he founded, and before he returned, in 1997. Besides, my new PowerBook was a beauty.

The stock was hovering around $9 a share, which I felt was undervalued. But it seemed I was the only person near Wall Street who thought that Apple was worth buying; in fact, many people were talking about the business going under. So, what to do? Go with my head, or listen to my heart? In the end, I followed the leads of those men in Albany and Sacramento, and Mr Grubman downtown, and became the proud owner of WorldCom shares, to the tune of $8,000. And that was my mistake, because four years later, in the summer of 2002, the company filed for bankruptcy, leaving millions of investors with worthless shares.

If I had gone with my heart, and my confidence in the vision of Mr Jobs, my 888 shares would now be worth about $180,000. As Warren Buffett advises, invest in companies whose products you understand and love. To that I am going to add the lesson I learned from my mistake: never separate your heart from your head, because they both are necessary to life, and when working together they can't be bettered.

James Brock is editor of Personal Finance