January 11th, 2013

planet

What to do with my losing stocks?

So I've written before about my adventures in the stock market, basically under the influence of some coworkers I thought it'd be fun to open a scottrade account and learn to trade stocks... it didn't go so well. I mean it went okay, I had some great picks that I made money on, but here's the problem: Pretend you find ten different companies that are all trading for around $10. On average, they say the stock market climbs 10% a year, but that doesn't mean all your stocks are going to be $11 next year. Some will be $12, some will be $15... one might be $1.

And that one that tanked? Unless you picked a really awesome winner that's now $20, your portfolio has not evened out. I now feel like that's how the "average" works... there are a lot of pretty good climbers. But the total losers outweigh the tiny winners, and unless you can buy into 100 different companies, the loser isn't going to have anything to even it out.

Then people told me "well don't sell when it's low or you'll lose your money!" so that's where I'm at now... I have a couple hundred dollars (which used to be closer to $1000) in my "loser stocks" that I'm sort of praying go back up, but reality is, they won't.

Here's what I own:

AMD - in 2005-2006 it was always going back and forth between $20-30, sometimes up to $40. I bought in 2006 at $20. It then spent 2007 going down to $5, and has not been over $10 since November 2007. Currently trading at $2.67.

KID - this company went public in 2010 and consistently traded in the $10 range for a year before I got in. Then in 2011, it dropped below $6 for most of the year. Currently $1.70.

GAIA - A dividend-paying stock in 2010 for $8. Dropped and has been below $5 since the middle of 2011. Currently $3.13.

So all of these stocks have been really low for more than a year, which tells me they're probably not going up any time soon. Sure, there's always a chance that if I sit on them for decades they'll come back, but... really?

Please do not tell me that I am the worst person ever at picking stocks. You all know I'm a smart girl. I'd read reviews of these companies, see what Motley Fool and other places said, then I'd buy. When I realized I wasn't winning, I sold my "high" stocks and am now sitting on these "low" stocks.

The question I'm struggling with now is whether to just cut my losses and sell them and REALLY be done with the stock market... it's exactly what they tell you NOT to do, don't sell low. But none of these stocks have done much over the past few years, and my money may very well do better in a credit union savings account.

And I'm kinda posting this as a cautionary tale too, for why I would not recommend opening your own trading account for fun. For me, it ended up being not very fun at all, and now that I've read some financial books I'm not the only one who thinks so. Both Dave Ramsey and Elizabeth Warren, two opposites who do not agree on anything, agree on this: low-risk mutual and index funds are the best choice for individuals who want to use the stock market to invest. It was just my gung-ho coworkers who talked me into scottrade... and this is not the only bit of bad financial advice I've gotten from my fellow engineers! But I do think it's one of the worst tips I actually tried to follow.