In 2001, I was in the middle of my get-out-of-crippling-student-debt phase. Dear Reader, you may be surprised to learn that that time in my life wasn’t as fun as my spend-all-my-money-on-video-games-and-candy phase. But it’s true.
Although I didn’t have much money, I managed to establish a very small emergency fund. But aside from knowing that being able to handle a financial emergency was important, I didn’t know anything much about investing. And I sure as heck didn’t know anything about individual companies such that I could relatively intelligently invest in one or the other.
Stocking up
2001 was, it turned out, the very tail end of the dot-com bubble. I know that now. I did not know it then. In this period, a friend mentioned the company PSINet, in internet service provider (ISP) that had relatively recently taken the not so cheap insignificant step of purchasing the naming rights to the Baltimore Ravens football stadium. My friend mentioned that it might be worth looking into purchasing PSINet stock. Gee, I thought. This company is an ISP, and ISPs are good. And it recently spent a boatload of money on buying stadium rights (which, later, enabled it to make a very exclusive list). Ipso facto, this is one solid company.
Armed with both wisdom and confidence, I took a large portion ($750) of our small emergency fund and, for the first time in my life, bought an individual company’s stock. Yeah, I was going to make a nice chunk of change on this modest transaction. And I’d parley it into further, equally smart investments. Maybe I’d even retire on it.
Not long after I made that investment, PSINet filed for bankruptcy. The pit I felt in my stomach when I heard this news was, shall we say, large. It was made larger by the thought that I had to tell The Missus — who’d given a reluctant and stilted “Ummm, Ooookaaaayyy” to my idea of investing in the first place — the news that we’d lost most of the investment within months of making it.
Gone, but not forgotten
While the loss hurt my pride, and didn’t exactly help our rather precarious financial situation — much less bankroll the rest of our lives — it proved to be exceptionally valuable in other ways. Never again did I invest in an individual company’s stock. And my wariness of — or, maybe more accurately, my appreciation for — the stock market was forged. Today, it’s broad index funds for us.
I’m sure that if I’d invested in individual company stocks over time, some of them may have made money. Maybe a lot. Others probably would have lost money. Maybe a lot. But I’m confident about a few things — I almost certainly would not have beaten the market over time, and although I didn’t make a fortune on individual company stock investing, I also didn’t lose everything to it. And that’s not nothing.
Respect the market, Dear Reader.
