5 Lessons Learned From Gaining & Losing Over $300,000 In The Stock Market





 

I’m going to take you back to a time in my life filled with both extreme exuberance and sickening disappointment. The stock market can be a marvelous, yet gut-wrenching machine.

 

Long before I adopted my unshakable obsession with the concept of FI/RE and transformed into DoggedFI, I was just another semi-normal dude going to work and dreaming of getting rich. It was early in 2011 and I had just recently graduated the summer before. After a rabid payoff of student loan debt, I started to frequently search the Internet for ways to (legally) obtain large amounts of money in a short amount of time. Despite having heard most of the usual advice against it, I decided to try my hand at penny stocks.

 

 

You should have seen her though. She was begging to be bought up. And buy her, I did.

 

Elite Pharmaceuticals (ELTP) was founded in 1984 but was still struggling to achieve its main mission. They had set out to conquer the pain management market with extended release painkillers and later developed a robust abuse resistant opioid technology. The problem was that the company’s scientists were just content to keep running clinical trials haphazardly instead of actively focusing on getting these drugs FDA approved and marketed. Money is, of course, a finite resource. You can’t spend it forever without making any to compensate. While Elite started out trading on the AMEX exchange (now NYSE) and reached a high of $24.50 per share, they later voluntarily de-listed the stock down to the world of penny stocks and almost slipped into bankruptcy due to extreme mismanagement. The stock reached an all time low of 3.8 pennies per share and hovered around that level for several years.

 

 

I read up on the company, checked out some message boards for a couple of days and then decided to buy in around 7 cents a share. ELTP then proceeded to jump up in price from around 7 cents a share to 26 cents a share within a week or two. I was on top of the world! What could go wrong?

 


(This chart says 24 cents as the high but I was watching the stock that day and I saw it hit 26.)

 

Unfortunately, I had continued to buy more shares on the run up and almost at the peak, which was short-lived. ELTP proceeded to top out at 26 cents and then began to retrace.. and retrace.. and retrace. It was definitely frustrating but I still believed in the company’s technology and just knew that they could bring it to market eventually. I bought more shares. And more. Almost every 2 weeks for months upon months. For years, even. Yeah. Crazy, right?

 

 

Enter late 2013. Elite had been puttering along and rose decently at the end of the year. A new CEO stepped in with aggressive goals for the company’s future. He had stated in a recent conference call that the company had an independent evaluation done and that the company should be worth 40 cents a share in an “end-of-the-world” scenario, a “middle-of-the-road” price of $2.10 per share, or a “everything-goes-perfectly” high-end price of $2.75 per share. This was fantastic news! I felt validated in my conviction for holding the stock so long and was now extremely confident that I’d be rewarded for doing so.

 

 

Fast forward to early 2014. Suddenly, Elite started seeing HUGE trading volume for several days in March. The stock absolutely caught fire. She ran from 12 cents all the way to a peak of 97 cents in a matter of days. Each penny higher brought an additional ~$4,000 or so in gains. During this incredible run, there was a day where my account balance grew by over $100,000 in a single day. There aren’t words that can describe that kind of excitement, so I won’t try. Suffice it to say that it was an insane few days! But of course, all good things must come to an end..

 

 

Warren Buffett has many great quotes regarding the stock market, one being “Be fearful when others are greedy and greedy only when others are fearful.” I had read it before but I didn’t heed the first part. I could’ve likely walked away with a $300,000-400,000 haul before taxes. Damn it. Hindsight is always 20/20.

 

I didn’t keep daily records but the following screenshot details my total cost and average price per share as of July 14, 2014. Close enough.

 

 

So What Did I Learn?

 

I will say it hasn’t been all bad. I did learn some important lessons:

 

1. Be smart with any windfalls that come your way.

 

If you insist on and get lucky picking individual stocks, take profits often and try to only play “with the house’s money”. If you inherit or otherwise obtain a large windfall, just invest it in index funds for proper diversification. One stock is way too risky to park a lot of your money.

 

2. It’s impossible to consistently time the stock market.

 

Even if I had cashed out at ELTP’s peak that year, I would’ve likely bought back in as it started to drop and I’d probably be in the red today. Plus, I probably would’ve had to sell again at the end of the year to cover the capital gains taxes. If you do trade single stocks, make sure you set these taxes aside in an account for Uncle Sam.

 

3. Everything has an opportunity cost.

 

Opportunity cost is defined as “the loss of potential gain from other alternatives when one alternative is chosen.” Had I invested all that money in total stock market index funds during one of the best bull markets in decades, how much would I have now? Well, we can look at the 5 year prospectus for VSMPX to get a rough idea:

 

 

4. Know your own risk tolerance and act accordingly.

 

Warren Buffett has another great quote – “You shouldn’t own common stocks if a 50% decrease in their value in a short period of time would cause you acute distress.” I learned from this experience that while I’m not totally unaffected by stock market changes, I don’t panic either. My investment was, at times, down over 60% and I managed to stay sane and sleep at night. It certainly sucked to see those red account balances but I made it through. This type of extreme volatility certainly isn’t for everyone.

 

5. Retirement savings are sacred.

 

No matter how much of a “sure thing” something seems, you should never risk your retirement funds on it. I’m glad I never did this with ELTP. Even if the company would’ve gone bankrupt, I’d still be okay financially. I’d be pretty pissed but it wouldn’t have completely sunk my battleship.

 

Well, How Did The Story End?!

 

Believe it or not, I’m actually still invested in the company to this day. What can I say, I’m hard-headed. I’ve taken some profits on occasion but am largely still holding a sizable amount of ELTP stock. I’m currently in the green as of last week. Stay tuned to hear how this one plays out!

 

 

Do you have any crazy stock market stories you’d like to share?

 

Comments

  • Amy @ Life Zemplified

    June 4, 2017 at 12:08 am

    Great lessons! I wish more people would pay attention to #5! Glad to hear you’ve taken some profits. Looking forward to hearing more about your ELTP story as time goes on. No crazy stock market stories for me…just past failures way back due to inexperience and naiveness. Fortunately, I’ve learned some things since then.

  • DoggedFI

    June 4, 2017 at 12:08 am

    Thanks Amy! Yep, I’ll definitely post another article once something else happens with it.

    Same here. I could’ve easily maxed my retirement accounts early on but didn’t. I’ve learned a good bit as well!

  • Mrs. Groovy

    June 4, 2017 at 12:08 am

    We’ve got some money in lithium stocks but it comprises a very small percentage of our portfolio. If our “mine” comes in, we’ll hit it big. If the stock tanks to zero, we won’t miss our investment. I think the idea of only playing with the house’s money is pretty smart, especially if you’re investing in volatile markets. Good luck — keep us posted!

  • DoggedFI

    June 4, 2017 at 12:08 am

    Nice. Good luck on your investments! I’ll certainly let ya know if a big development happens with mine! 🙂

  • Lily @TheFrugalGene

    June 4, 2017 at 12:08 am

    I am the type that likes to play and while it is true majority of our savings are in a total market fund, I like to sneak out 20K to sprinkle on my favorites for the thrill. The 5 takeaway lessons you have are excellent and I’m not surprised you’re still hanging in there. If you believe in it’s potential as it’s written on paper then stick with it. I believe Mr. Tako wrote something similar when his Deere stock flat lined for years but he hung on, and it suddenly jumped, returning him an average of 12% for every year he held on.

  • DoggedFI

    June 4, 2017 at 12:08 am

    Thanks Lily! I enjoy the thrill of stock picking as well. I do still believe in it and we shall see how it plays out!

  • Xyz from OurFinancialPath

    June 4, 2017 at 12:08 am

    Great story! I can say I have seen my share of overvalued accounts. I saw a client once jump from $25,000 to $400,000 and still didn’t want to sell anything! Human instinct, I guess…

  • DoggedFI

    June 4, 2017 at 12:08 am

    Wow, incredible jump! I agree, you think the run will last forever. Lessons learned!

  • MrDoublingDollars

    June 4, 2017 at 12:08 am

    I have some money in risky investments: junior gold miners, lithium miners, one company working on a cyrptocurrency blockchain for business to use to record transactions worldwide. But I consider about $500 a ‘full’ position in each of them.

    I couldn’t imagine the excitement and heartbreak of losing that much, even if it was just ‘on paper’.

  • DoggedFI

    June 4, 2017 at 12:08 am

    Yeah, it’s certainly extremely high risk. Hopefully it plays out in my favor in the end! Blockchain tech definitely seems to be the way of the future. I just bought 2 Ethereum coins around $240ish recently!

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