Abandoning the Rules for a ‘Sure Thing’
When Vonage had their IPO I felt it was a great opportunity for me to participate in the “sure thing” of getting in on the initial price and with a low-priced stock in my retirement account. I was smart enough to wait for a couple of days after the IPO, after the initial buying had passed and the stock dropped somewhat. I felt entirely comfortable (that should have been a warning right there!) and didn’t even bother tracking it for the next several days. I was shocked when I saw that its value had dropped by 50%! Then I made the classic error – I actually bought more, thinking that surely it had bottomed out.
Finally, after it dropped yet more, I applied some technical analysis, determined that it was indeed due for a bounce, set a target price and held on. The dead-cat bounce did occur, and I forced myself to sell despite my emotions claiming that surely it would now rise even more. I finally realized there was so much overhang from bag-holder investors like me that it was a lost cause.
This was a very expensive way for me to lose about $5,000 in my retirement account over “just a cheap little stock”!! Now, in addition to making only cautiously limited quantities of buys, I am using rigorous stops, applying my rules, and checking back to see if the positions are still meeting criteria. I’m only part-way to making back the loss but optimistic that discipline will guide the way to long-term success!