My Best and Worst Money Moves

Since Jim at Blueprint for Financial Prosperity started the best and worst money moves last Monday, many have shared their stories with us and a lot can be learned from their personal experience. Looking back the road of our investment of the past five years, if the best or worst is measured by the size of money gained or lost, I do have a couple of them that I can share. But if I have to single out one move that affects us the most financially, it's the decision to start investing early.

When my wife and I finished our study and got our degrees (Master for her and PhD for me) in 2000 and 2001, respectively, we only had a couple of thousands in our bank account, but the good thing was we didn't have any debt either. Late that year and early 2001, we started investing in some mutual funds and the very first fund we owned was Vanguard Wellington. As everybody knows, 2001 and the following year were not really good for stock markets as the economy slided into recession and major indices lost a big chunk of their values. However, we were not intimidated by the falling stock prices and continued to contribute regularly into our mutual fund holdings. Actually, seven (CSVFX, BUFSX, DODGX, TGLDX, OAKBX, PRSVX, and CGMFX) out of thirteen mutual funds we currently own were initially purchased in 2001 and 2002. It was really not easy to see more losses of values every time we added new money, but we didn't stop and wait. The markets were very bad already, how bad could it be down the road? If one day the markets started to recover, those shares we bought cheap would give us big returns. As it turned out later, that was indeed the case.

Mutual fund investments are supposed for long-term and we didn't really look for quick bucks with them. As many stocks hitting record lows in 2002, we also started investing in some well-known tech stocks. For example, we bought 2000 shares of NT at $0.47 in September 2002, 2000 shares of LU at $0.88 and 300 shares of MOT at $9.93 (the most expensive stocks I purchased at that time) in October, 1000 shares of ALA at $4.88 in November and 1000 shares of GLW at $4.01 in December. Again how bad could they be? Our patience paid off when we sold these stocks a year and half later. NT shares were sold at $4.08 and MOT shares were sold at $12.98 in December 2003, GLW shares were sold at $12.64 in March 2004 and ALA shares were sold at $15.22 in May, when we paid $50,000 downpayment to buy our current house with a 5-year ARM at 4.75%, almost the the lowest rate at that time. And we didn't touch our mutual fund investments at all. Without those stock investments, it could be a little hard for us to come up with the downpayment. Of course, the market itself presented us an excellent opportunity to buy low and sell high later, but what we learned from this was to focus on long-term investment and not to shun away from the market even when it went into some tough times. On January 1st, 2004, we had a net worth of $201,442. Since then, we bought a house in May 2004, had our first child in February 2005, and bought a new minivan in May 2005. By the end of last month, our net worth was at $401,089. Without the early investments, I doubt we could double the number in less than three years.

OK, now the worst. There were several pretty bad investment decisions that I regret I had made. The first one was repeatedly getting into NT. After seeing NT passed $6.00 a share in January 2004, I jumped in again and bought 1000 share at $6.67. Since then the stock sank by accounting scandals and never recovered. To offset the loss, I added another 1000 in May 2004 at $3.95 and 400 in October at $3.27. The decision in January 2004 was totally based on speculations, which resulted in a 60% decline of the value of NT in our account with no end in sight. I also bought some other cheap stocks in 2003 and 2004, looking for some quick money and once I felt I couldn't make money quickly enough, I dumped the stock. So I never hold those stocks for long, a couple of months the most and most of them were failures. Another example is LFC, which also happens to be my best investment so far. I bought 1200 shares of LFC at $25.16 in December 2003 when it started trading on the big board, some of the money were borrowed from my credit cards' 0% BT offers. The reason to invest in LFC was obvious: the lack of life insurance for most of the people in China and the dominance of LFC in China's insurance business. The future seemed promising. However, the first year of LFC wasn't smooth. After reaching a high of $35 in the first couple of weeks of its IPO, the stock headed south and stayed flat throughout 2004 and most part of 2005. Then I lost my faith and had to sell 700 shares at $26.21 in May 2005 to pay for the credit debt. Ironically, the stock took off in October 2005 and the price went up in almost a straight line. Regret? Yes, a little if I look at where LFC is today. And the lesson from these failed moves was first, fundamentals not speculations determine the stock price; second, trying to time the market in a normal market condition is a bad idea; third, patience is required for promising stocks; finally, don't buy stocks with borrowed money!