When people put all their eggs in the wrong basket

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campos202
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Re: When people put all their eggs in the wrong basket

Post by campos202 »

A lot of people are second guessing what we could have done different, and the biggest thing is that a lot of us should have been more diversified. And I think that is the biggest takeaway from all of this.
Yep.
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DonCamillo
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Re: When people put all their eggs in the wrong basket

Post by DonCamillo »

B. Wellington wrote:
barnaclebob wrote:People talk about selling and then getting in on class action lawsuits
FWIW...I was part of the class action lawsuit with a publicly traded financial company. I sold "early" and got out. Losing "only" a couple thousand. Lesson learned. After getting all of the paper work together and months later I believe a got about $300 back.
If you got about 15% of your losses back I think you did much better than average. I have received settlements from three of these lawsuits and my recovery ranged from less than 1% of my loss to about 5%. The lawyers always got millions. The lawsuits are for the benefit of the law firms, not the people who lost money. You also got a quick response if it only took months. My payments usually came about a year or two after filling out the forms.

More helpful than possible lawsuits was the fact that 50% of the float had been borrowed by short sellers. When most of them covered their shorts, that allowed a lot of people to get about $1 a share back by selling on Monday. (Some people got about $2 back on Tuesday by selling to suckers who thought the sales on Monday meant that the stock still had value, but the shorts all covered on Monday.) A dollar a share is probably a lot more than anyone will get back from a lawsuit.
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jfn111
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Re: When people put all their eggs in the wrong basket

Post by jfn111 »

jstrange1970 wrote:
bhsince87 wrote:The best way to avoid putting all your eggs in the WRONG basket is to avoid putting all them into ONE basket.

I took a massive hit to my net worth when the company I worked for got hit with a scandal. I had a huge amount of my 401k in company stock, ...
Events like this always cause me to revisit my own situation. I have a long-standing position in Altria [MO] in a tax-advantaged account that I'd historically reinvested dividends in, with the early idea that I'd keep it at a managable and shrinking percentage of my overall portfolio (<20%). The problem was that with splits, spin-offs (PM Intl, SABM, and Kraft), and a healthy dividend stream, it kept growing faster than my other holdings (and outpacing new contributions) and growing as a percentage of my portfolio. It was hard ... very, very hard ... to stop reinvesting the dividend stream in MO and switch that over to ITOT and IXUS. It was even harder to modify my investment plan and mandate quarterly sales when my stake exceeds 12.5% of the total. It continues to be a challenge as MO continues to out-perform and I'm forced to complete those sales. I'm positive I've left money on the table in doing so but I view it as essential to manage risk. At this point, however, even if MO was to go the same way as GTAT (which I personally view as highly unlikely over any time horizion relevant to me personally), I'd be ahead just from the prior income stream and spin-offs.

Only time will tell if I made the right decision but I definitely sleep better at nights.

Similar but much less material issue with BRKB
I had to chuckle a bit when I read your post. I'm an Altria retiree and I have about 10% of my 401K and 7% overall tied up in MO stock. My shares date back to when it was an esop plan before the 401K came along. I keep thinking I should cut it back to around 5% but then I get another dividend check and the thought seems to go away. :oops:
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danwhite77
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Re: When people put all their eggs in the wrong basket

Post by danwhite77 »

Since Jim Cramer has come up repeatedly in this thread, I thought you all might get a kick out of this parody article on his show:

http://www.theonion.com/articles/everyo ... -no,32346/
"While some mutual fund founders chose to make billions, he chose to make a difference." - Dedication to Jack Bogle in 'The Bogleheads' Guide to Investing'.
Quickfoot
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Re: When people put all their eggs in the wrong basket

Post by Quickfoot »

The sad thing is these people thought they were investing when they were gambling. Before investing people really need to read a couple of behavioral investing books, learn about cognitive bias and then select an investing methodology.

If you are prone to cognitive bias and suffer from poor investing behavior it doesn't matter whether you are a boglehead, an individual stock holder or a day trader because you are going to get burned. The unfortunate thing is we are all born genetically programmed for cognitive bias and poor investing behavior (helped us survive and avoid being eaten ten thousand years ago) and unless the person is aware of it and mitigates it will fall prey to it.

Their forum demonstrates massive amounts of confirmation, anchoring, and bandwagon cognitive bias. Our forum also demonstrates quite a bit of cognitive bias but fortunately the advice here is less likely to cost people their savings.
ftobin
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Re: When people put all their eggs in the wrong basket

Post by ftobin »

campos202 wrote:
A lot of people are second guessing what we could have done different, and the biggest thing is that a lot of us should have been more diversified. And I think that is the biggest takeaway from all of this.
Yep.
Interestingly, the person you quoted is the exact same forum Administrator/Staff Member who said on September 9th:
Not really. Investing in index funds would be a dangerous game for me:

If I put all of my money in index funds, I might be able to retire around 60 years old. But if I do focused investing then I might be able to retire when I am 40 years old.

On the other hand if my "focused" investing blows up and GTAT goes bankrupt and I lose all of my money, I can start from scratch and retire when I am 65 years old.

So to me, the "game" that I am playing has two options:

1. Play it safe and retire at age 60.
2. Play it "risky" and heads retire at 40, tails retire at 65.

IMO, option number 1 is a lot more "dangerous" game to be playing than option number 2...
campos202
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Re: When people put all their eggs in the wrong basket

Post by campos202 »

ftobin wrote:
campos202 wrote:
A lot of people are second guessing what we could have done different, and the biggest thing is that a lot of us should have been more diversified. And I think that is the biggest takeaway from all of this.
Yep.
Interestingly, the person you quoted is the exact same forum Administrator/Staff Member who said on September 9th:
Not really. Investing in index funds would be a dangerous game for me:

If I put all of my money in index funds, I might be able to retire around 60 years old. But if I do focused investing then I might be able to retire when I am 40 years old.

On the other hand if my "focused" investing blows up and GTAT goes bankrupt and I lose all of my money, I can start from scratch and retire when I am 65 years old.

So to me, the "game" that I am playing has two options:

1. Play it safe and retire at age 60.
2. Play it "risky" and heads retire at 40, tails retire at 65.

IMO, option number 1 is a lot more "dangerous" game to be playing than option number 2...
Quite prophetic. He clearly understands the risk, at least in part. I think the thing he is ignoring is what happens if after GTAT blows up and he loses his income stream tomorrow via disability, job loss, etc. Now you are back to square one with less of an ability to catch up.
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zaboomafoozarg
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Re: When people put all their eggs in the wrong basket

Post by zaboomafoozarg »

Interestingly, Bogleheads was just mentioned today in the thread:
I like the boglehead approach... total market US, international and bonds. No more than 10% in individual stocks and no more than 5% in one individual stock. No get rich quick deals with that, but you will at least protect what you got. Of course I didnt follow my own advice and will pay dearly...
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cheese_breath
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Re: When people put all their eggs in the wrong basket

Post by cheese_breath »

campos202 wrote:
ftobin wrote:
campos202 wrote:
A lot of people are second guessing what we could have done different, and the biggest thing is that a lot of us should have been more diversified. And I think that is the biggest takeaway from all of this.
Yep.
Interestingly, the person you quoted is the exact same forum Administrator/Staff Member who said on September 9th:
Not really. Investing in index funds would be a dangerous game for me:

If I put all of my money in index funds, I might be able to retire around 60 years old. But if I do focused investing then I might be able to retire when I am 40 years old.

On the other hand if my "focused" investing blows up and GTAT goes bankrupt and I lose all of my money, I can start from scratch and retire when I am 65 years old.

So to me, the "game" that I am playing has two options:

1. Play it safe and retire at age 60.
2. Play it "risky" and heads retire at 40, tails retire at 65.

IMO, option number 1 is a lot more "dangerous" game to be playing than option number 2...
Quite prophetic. He clearly understands the risk, at least in part. I think the thing he is ignoring is what happens if after GTAT blows up and he loses his income stream tomorrow via disability, job loss, etc. Now you are back to square one with less of an ability to catch up.
I think it’s interesting he believes losing everything in GTAT will only push his retirement back five years compared to investing in index funds. While he may be able to retire at 65 I have my doubts this retirement would be as well funded as the age 60 retirement. He may understand the risks, but I'm not sure he understands the consequences. It may take him more than five years to catch up.
The surest way to know the future is when it becomes the past.
nordsteve
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Re: When people put all their eggs in the wrong basket

Post by nordsteve »

I feel sorry for them.

Paid that same tuition back when I was young. Worked for a company and put all of my 401K into the stock. Believed the optimistic messages of management about the future of the company. Thankfully it happened early in my career.
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greg24
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Re: When people put all their eggs in the wrong basket

Post by greg24 »

Another thing I learned from that thread is that it must take a lot of work to be an active investor in specific stocks. Lots of reading of SEC filings, tons of research about the yet-to-be-released iphone, etc.

Maybe my laziness guided me to asset allocation...
fposte
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Re: When people put all their eggs in the wrong basket

Post by fposte »

cheese_breath wrote: I think it’s interesting he believes losing everything in GTAT will only push his retirement back five years compared to investing in index funds. While he may be able to retire at 65 I have my doubts this retirement would be as well funded as the age 60 retirement. He may understand the risks, but I'm not sure he understands the consequences. It may take him more than five years to catch up.
What strikes me is he genuinely seems to think his 1 and 2 outcomes are equally likely. It's not much different from saying I either #1, spend $100k on lottery tickets and maybe retire at 40, or #2, invest in index funds and retire at 60. Eliminating consideration of the probability of each makes the comparison meaningless.
greg24 wrote: Another thing I learned from that thread is that it must take a lot of work to be an active investor in specific stocks. Lots of reading of SEC filings, tons of research about the yet-to-be-released iphone, etc.
Yes, somebody on the thread posted that they wanted to diversity but couldn't see how they'd manage to do all the work necessary to diversify into ten stocks.
rjm_cali
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Re: When people put all their eggs in the wrong basket

Post by rjm_cali »

There has been little discussion about Apple's role in this but if you want to see how sharp financial minds work - read the article at Forbes - http://www.forbes.com/sites/chuckjones/ ... -to-apple/

"The filing also says that GTAT had entered into a Prepayment Agreement where it would receive $578 million in four installments as advance payments for sapphire goods. GTAT would be required to repay the amount over a five year period by January 2020 as a credit to sapphire goods or a cash payment.

Three other critical provisions were:
GTAT’s obligation to repay the Prepayment Amount may be accelerated under certain circumstances.
GTAT’s obligations under the Prepayment Agreement are secured by certain of its assets.
While the MDSA specifies GTAT’s minimum and maximum supply commitments, there are no minimum purchase requirements under the terms of the MDSA. "

That's called negotiating from a position of strength...... The issue about assets (most important being the IPR) is key I'd have thought.

What I found odd reading that thread, was it was on forum for contrarian investors
abyan
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Re: When people put all their eggs in the wrong basket

Post by abyan »

Holy cow, I didnt' realize that kid was talking about 415,000 shares that he hid from his mother. Who would do that? Your mom says to sell $3m worth of something, so instead you hide it and gamble with it? Wow. And you're right, he's not even going to tell her.
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hornet96
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Re: When people put all their eggs in the wrong basket

Post by hornet96 »

Quickfoot wrote:The sad thing is these people thought they were investing when they were gambling. Before investing people really need to read a couple of behavioral investing books, learn about cognitive bias and then select an investing methodology.

If you are prone to cognitive bias and suffer from poor investing behavior it doesn't matter whether you are a boglehead, an individual stock holder or a day trader because you are going to get burned. The unfortunate thing is we are all born genetically programmed for cognitive bias and poor investing behavior (helped us survive and avoid being eaten ten thousand years ago) and unless the person is aware of it and mitigates it will fall prey to it.

Their forum demonstrates massive amounts of confirmation, anchoring, and bandwagon cognitive bias. Our forum also demonstrates quite a bit of cognitive bias but fortunately the advice here is less likely to cost people their savings.
Agree, and would just add that all people are subject to cognitive errors and behavioral biases....the critical moment of growth is when a person realizes this fact. It's a bit like waking up from the Matrix and realizing "there is no spoon."

Until the folks on that forum realize that there is no spoon, they will be doomed to repeat the same cognitive errors over and over, often at great financial cost (such as this example). I feel bad for them, but feel especially bad for the mother whose son apparently has been hiding his investment decisions from her (talk about irresponsibility/gross negligence).
ftobin
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Re: When people put all their eggs in the wrong basket

Post by ftobin »

Even a Vanguard actively-managed fund got caught up pretty severely. Vanguard Capital Value fund had 2% of its portfolio in GTAT:
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campos202
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Re: When people put all their eggs in the wrong basket

Post by campos202 »

cheese_breath wrote: I think it’s interesting he believes losing everything in GTAT will only push his retirement back five years compared to investing in index funds. While he may be able to retire at 65 I have my doubts this retirement would be as well funded as the age 60 retirement. He may understand the risks, but I'm not sure he understands the consequences. It may take him more than five years to catch up.
Reading his specific situation it looks like he wasn't all in as some were. Still he may be all in, in other spots. I agree though he may be way overestimating how much ground he has to make up.
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danwhite77
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Re: When people put all their eggs in the wrong basket

Post by danwhite77 »

ftobin wrote:Even a Vanguard actively-managed fund got caught up pretty severely. Vanguard Capital Value fund had 2% of its portfolio in GTAT
Boggles my mind that any fund, Vanguard or otherwise, with the term "Value" in its name could have been holding GTAT. How is that a "value" company? Groupon is their second biggest holding. Groupon. A company with negative EPS and, of course, no P/E ratio (M* has a forward P/E of 42.5) is somehow a "value" company? Am I missing something here?
"While some mutual fund founders chose to make billions, he chose to make a difference." - Dedication to Jack Bogle in 'The Bogleheads' Guide to Investing'.
dolphinsaremammals
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Re: When people put all their eggs in the wrong basket

Post by dolphinsaremammals »

I searched for info about that stock after reading this thread because I had also never heard of it. The search turned up two or more solicitations from lawyers for people who had lost X dollars on the stock to contact them. X was $100,000 in one case and maybe $750,000 in another case. What's going on there, lawyers ripping off people who had already lost a lot of money for legal fees to accomplish nothing? Or am I just cynical?
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cheese_breath
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Re: When people put all their eggs in the wrong basket

Post by cheese_breath »

dolphinsaremammals wrote:What's going on there, lawyers ripping off people who had already lost a lot of money for legal fees to accomplish nothing? Or am I just cynical?
No, not cynical, but maybe a little naïve. :P After all, that's what lawyers do.

What's the lawyer between a catfish and a lawyer?
One's a slimy, bottom sucking scavenger. The other one's a fish.

Hope this doesn't get me sued, or even worse reprimanded by LG. :D
The surest way to know the future is when it becomes the past.
cusetownusa
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Re: When people put all their eggs in the wrong basket

Post by cusetownusa »

greg24 wrote:Another thing I learned from that thread is that it must take a lot of work to be an active investor in specific stocks. Lots of reading of SEC filings, tons of research about the yet-to-be-released iphone, etc.

Maybe my laziness guided me to asset allocation...
This applies to me and is how I found this site...I was thinking there has to be an easy way to invest for retirement and that I should be able to invest/diversify with just a few funds. When I googled this it led me to the 3 fund portfolio link here...the rest is history.
randomguy
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Re: When people put all their eggs in the wrong basket

Post by randomguy »

dolphinsaremammals wrote:I searched for info about that stock after reading this thread because I had also never heard of it. The search turned up two or more solicitations from lawyers for people who had lost X dollars on the stock to contact them. X was $100,000 in one case and maybe $750,000 in another case. What's going on there, lawyers ripping off people who had already lost a lot of money for legal fees to accomplish nothing? Or am I just cynical?
None of the "victims" are going to pay legal fees. What will happen is that lawyers will get like a 50 million dollar settlement (assuming their is anything left), take 40 million of it for fees, and return 10 million to the exShareholders.

What I can't decide is was the CEO greedy or just unfortunate with his sale before the apple announcement. He had sold like 8+ million earlier in the year. Was selling another 160k worth it? Granted he might have had to (i.e. had established a plan earlier in the year) but man does it look bad for a very small sum of money,
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Trevor
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Re: When people put all their eggs in the wrong basket

Post by Trevor »

To someone who is more knowledgeable than I: Using hindsight, was there any "warning signs" that this company was about to go under, or was it a complete shock? I know nothing about individual stocks :wink:
WWJD - What Would Jack Do?
Quickfoot
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Re: When people put all their eggs in the wrong basket

Post by Quickfoot »

One of my employees just asked if we have a self directed brokerage option in our 401K because he wants to invest 75-90% of his retirement in an IPO that he admits is pretty risky. I told him about this thread and the people that have lost everything he still wants to do it *sigh*.
was there any "warning signs" that this company was about to go under, or was it a complete shock? I
I'm assuming the CFO probably knew, does not appear there was any broad research available about the poor financial shape of the company. Apple didn't even know they were about to file bankruptcy.
Last edited by Quickfoot on Thu Oct 09, 2014 3:40 pm, edited 1 time in total.
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Phineas J. Whoopee
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Re: When people put all their eggs in the wrong basket

Post by Phineas J. Whoopee »

stevep001 wrote:...
Paid that same tuition back when I was young. Worked for a company and put all of my 401K into the stock. Believed the optimistic messages of management about the future of the company. Thankfully it happened early in my career.
I'm happy you escaped without great harm.

It puzzles me why anybody thinks management would give pessimistic messages, either to shareholders, or to creditors, or to customers, or especially to employees. As long as they feel their plan can work they'll say it. They are required to do something about forward guidance, and they have to be independently audited (GTAT's auditor cited inadequate financial controls), but honestly, which CEO worth their pay will say "we're standing on the edge of a precipice, and even though I have a mad scheme to pull us back from the brink most likely we'll all go broke and some of us to jail."? That would be a self-fulfilling prophecy.

PJW
avalpert
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Re: When people put all their eggs in the wrong basket

Post by avalpert »

Trevor wrote:To someone who is more knowledgeable than I: Using hindsight, was there any "warning signs" that this company was about to go under, or was it a complete shock? I know nothing about individual stocks :wink:
Based on what i have seen it seems their continued existence was heavily contingent on a single payment from Apple that itself required certain performance levels they were having trouble hitting. It may have been a low probability warning that a big event could happen but that is precisely why you avoid single stock risk - those low probability events do happen and if the warning was obvious it would have already been priced in.
autonomy
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Re: When people put all their eggs in the wrong basket

Post by autonomy »

avalpert wrote:
Trevor wrote:To someone who is more knowledgeable than I: Using hindsight, was there any "warning signs" that this company was about to go under, or was it a complete shock? I know nothing about individual stocks :wink:
Based on what i have seen it seems their continued existence was heavily contingent on a single payment from Apple that itself required certain performance levels they were having trouble hitting. It may have been a low probability warning that a big event could happen but that is precisely why you avoid single stock risk - those low probability events do happen and if the warning was obvious it would have already been priced in.
Can someone more familiar with the company answer this then: what if Apple did make that last payment, what then? Would the company have enough money to stay in business/continue operation? Otherwise it seems like Apple is to blame here for ruining GTAT by withholding the payment.
avalpert
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Re: When people put all their eggs in the wrong basket

Post by avalpert »

autonomy wrote:
avalpert wrote:
Trevor wrote:To someone who is more knowledgeable than I: Using hindsight, was there any "warning signs" that this company was about to go under, or was it a complete shock? I know nothing about individual stocks :wink:
Based on what i have seen it seems their continued existence was heavily contingent on a single payment from Apple that itself required certain performance levels they were having trouble hitting. It may have been a low probability warning that a big event could happen but that is precisely why you avoid single stock risk - those low probability events do happen and if the warning was obvious it would have already been priced in.
Can someone more familiar with the company answer this then: what if Apple did make that last payment, what then? Would the company have enough money to stay in business/continue operation? Otherwise it seems like Apple is to blame here for ruining GTAT by withholding the payment.
That's not really what I said - Apple withheld the payment because the company didn't meet the necessary performance targets, in other words the company didn't perform. I'm no Apple fan but you can't blame them because the contractor couldn't perform per the terms of the contract.
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Re: When people put all their eggs in the wrong basket

Post by Quickfoot »

Otherwise it seems like Apple is to blame here for ruining GTAT by withholding the payment.
I am NOT a fan of Apple at all but they aren't to to blame. GTAT wasn't entitled to the payment because they didn't achieve the criteria agreed to in the contract. If the criteria was not realistic then GTAT is to blame for signing a contract for something they couldn't deliver, if the criteria was realistic GTAT is to blame for not meeting the criteria. Apple has also said they had no idea withholding the payment would cause the collapse of GTAT. Ultimately the failure of GTAT is either a poor business decision or poor execution and all of the blame rests on GTAT.

It is common for Apple suppliers to bet the farm on a contract with Apple, they assume a huge amount of risk that most the time pays off. The thing about potential risk is it has a nasty habit of occasionally becoming realized risk which is what happened with GTAT.
I'm no Apple fan but you can't blame them because the contractor couldn't perform per the terms of the contract.
Yes, it feels quite odd defending Apple actually.
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greg24
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Re: When people put all their eggs in the wrong basket

Post by greg24 »

As for the optimistic statements from the company leaders...

Have any of you worked at a startup? The entire existence of a startup is dancing on the edge of a knife, fighting for that next contract, fighting for that next media mention, fighting to get your numbers up to snuff by the earnings announcement.

It wouldn't surprise me a bit if the management was fighting to overcome this next hurdle, was confident they'd find a way to get past it (after all, they found a way to overcome all the previous hurdles), but this time, they didn't make it.

Nothing devious, just the nature of the business.
randomguy
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Re: When people put all their eggs in the wrong basket

Post by randomguy »

autonomy wrote: Can someone more familiar with the company answer this then: what if Apple did make that last payment, what then? Would the company have enough money to stay in business/continue operation? Otherwise it seems like Apple is to blame here for ruining GTAT by withholding the payment.
It isn't Apples job to keep a company in business. What isn't clear if GTAT was unable to commercialize or if it turned out that sapphire sucked for smart phone screens (i.e. Corning has maintained that gorilla glass does better overall on large screens). Both were well known risks.

As far as this be predictable, it was right in the Nov 2013 10-Q filings
If Apple does not purchase sufficient quantities of sapphire material we may be unable to meet our obligations to repay advances that were provided to us.

Apple has committed to make a $578 million prepayment to us. We must repay this amount ratably over a five year period ending January 2020, either as a credit against Apple purchases of sapphire goods or as a direct cash payment. We have granted certain exclusivity rights to Apple with respect to the sapphire material generated with such ASF systems. Therefore, our sapphire material business will depend on purchases of sapphire material from Apple. If Apple purchases no sapphire material, or limited sapphire material, we would be required to repay (on a quarterly basis), significants amounts of the prepayment amount using our cash resources, which would limit our ability to invest in or operate other portions of our business, including our equipment operations. In addition, these repayments may exhaust all of our cash and, if we are unable to make a payment when due, we will be in default and Apple will have the right to acquire control and possession of the ASF systems (and to be paid in cash for any deficiency). In addition, in order to secure payment of a portion of the prepayment, we have also granted Apple a security interest in certain of the assets of GTAT Corp. (our principal U.S. subsidiary). The prepayment installments may also be cancelled prior to payment, or repayment accelerated, under certain circumstances, including if the ASF systems do not generate sapphire material to specification prior to an agreed upon date or we are unable to comply with certain financial covenants. Finally, if the repayment of the prepayment were to be accelerated, it would likely produce a cross-default under our 3.0% convertible notes (correspondingly, an acceleration of the 3.0% senior convertible notes would likely produce a cross-default under the Prepayment Agreement), and we may not have sufficient resources at such time to satisfy these obligations. In addition, a portion of the prepayment can be used for working capital by GTAT, but must be used within a short period for the purchase of sapphire equipment under the supply arrangement.

Even if Apple does purchase adequate amounts of sapphire material, the margins related to this business (when operating at expected capacity) will be much lower than those of our equipment business.
This was an extreme example of a stock that was going to go to 50 or 0 with not much in between. They bet everything on being able to make sapphire screens for iPhones and when that didn't happen, they were finished as a company. It worked out well for company employees who sold after the bump from 3 bucks to 15+. Not well for the people that jumped in towards the top. It is easy to blame management but I think you have to be pretty paranoid to think that these guys bet their company for a chance to do a pump and dump or that Apple failed to do due diligence before forking over 500 million dollars. Apple make a bet (sapphire might give them an edge) and hedged (gorilla glass back up plan). GTAT couldn't do that.
Quickfoot
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Re: When people put all their eggs in the wrong basket

Post by Quickfoot »

It wouldn't surprise me a bit if the management was fighting to overcome this next hurdle, was confident they'd find a way to get past it (after all, they found a way to overcome all the previous hurdles), but this time, they didn't make it.
Right, it isn't surprising Apple didn't know. You don't go to a job interview and say "Boy I sure hope you hire me because I just spent my last $10 on gas coming to this interview." While the leap of faith would be impressive the lack of judgement not so much. GTAT was basically interviewing with Apple for a supplier job. Apple does the same thing Walmart does and imposes contract terms that protect them but tend to not be as favorable to the supplier. Good for Apple's shareholders, not so good for GTAT.
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Phineas J. Whoopee
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Re: When people put all their eggs in the wrong basket

Post by Phineas J. Whoopee »

Quickfoot wrote:...Good for Apple's shareholders, not so good for GTAT.
Properly diversified investors probably held both, but the subject of the thread is when people bet a lot of it, or it all, on a single stock, and how devastating it is for them when they lose out.

It may be appropriate for founding management to take big risks like that, because they're steering, but it isn't appropriate for anybody else. And that's what the people on that forum concentrating resources in GTAT either didn't know, or in the case of some, seem to have been willfully ignoring.

The guy who has to conceal from his mother she's $3,000,000 down, and worse, his mother who's been lied to by her own son and will never even find out unless there's a crisis where she needs the resources, or a meeting with an estate attorney for planning purposes, are a sad story. The parent of a special-needs son who lost all her $80,000 worth and doesn't know what to do next is beyond sad, regardless of blame. At least, for them, we have a social safety net.

Bogleheads.org is the most-visited non-commercial financial website. Maybe we help the world, at least a little.

All praise to the founders and moderators of this forum.

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SpecialK22
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Re: When people put all their eggs in the wrong basket

Post by SpecialK22 »

Sometimes I think that people become as emotionally attached to a company's stock as they do to a company's products. A cult of personality develops around the company and sometimes its officers. This leads to speculators becoming just as emotionally invested in the company as they are financially. While GTAT exploded spectacularly, the same mentality exists amongst many others who invest all or most of their money into high risk companies. The financial disclosures of these companies often scream risk, but are almost hilariously downplayed at times. Take for example Advanced Cell Technology (ACTC). It's a happy thought: Invest in a company that cures blindness (at least some causes of it) and make millions in the process. "Dr. Lanza will cure blindness and then this stock will soar! I'm not sure if time travel can be invented, but if anyone can invent time travel he can." (Merged parts of two posts together for dramatic effect, and to be fair I couldn't figure out if the guy talking about time travel was being serious or not). Risks, what risks?


•The sale or issuance of our common stock to Lincoln Park may cause dilution and ... could cause the price of our common stock to fall.
•We may require additional financing to sustain our operations and without it we may not be able to continue operations.
•Our primary source of liquidity is this financing arrangement with Lincoln Park, and changes in our share price directly affect our ability to fund our operations.
•Our business is at an early stage of development and we may not develop therapeutic products that can be commercialized.
•We have never generated any revenue from product sales and may never be profitable.
•We have a history of operating losses and we may not achieve future revenues or operating profits.
•We are dependent on new and unproven technologies.
•We face intense competition and rapid technological change and the possibility that our competitors may develop therapies that are more advanced or effective than ours, which may adversely affect our financial condition and our ability to successfully commercialize our product candidates.
•Certain parts of our technology are not protectable by patent.

(Note: These were published in an online article. I didn't actually read them right from the financials).

Then again the stock is up almost 21% YTD, although it has been a bumpy ride. Who knows, maybe it'll turn out to be a blockbuster stock?

Regardless of the inherent risks, when someone's reasons for doing something is based on emotion and a gut feeling it's almost impossible to sway them. What I consider major red flags for downside risk are downplayed as something a company has to say but doesn't really mean anything.
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nisiprius
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Re: When people put all their eggs in the wrong basket

Post by nisiprius »

swimirvine wrote:...The biggest issue I have with Cramer is that his show makes investing in the stock market seem like a game...
It is a game, to him.

Game, as in "gaming."

"Gaming," which is what folks in the gaming industry like to call the gambling industry.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Phineas J. Whoopee
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Re: When people put all their eggs in the wrong basket

Post by Phineas J. Whoopee »

nisiprius wrote:
swimirvine wrote:...The biggest issue I have with Cramer is that his show makes investing in the stock market seem like a game...
It is a game, to him.

Game, as in "gaming."

"Gaming," which is what folks in the gaming industry like to call the gambling industry.
To him, I believe, it's tout, as in "touting."

"Touting," which is what folks in the gaming industry like to call an honest day's work for an honest day's pay.

He may have to shill a little, on the side, to afford his ties.

PJW
gmudhorse
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Re: When people put all their eggs in the wrong basket

Post by gmudhorse »

GTAT investor here... I lost $160k - a huge chunk of my portfolio. The only saving grace for me is I'm still young and have a stable tech job. I can just earn it back if I'm careful.

I've been a stock picker with tech stocks in the past few years, even before I had a real job. I got high double digit gains every year, and then this got me back to ground zero. I even have a spreadsheet to track the stocks I've picked - and all of them are still showing double digit or even triple digit gains - except GTAT. I was one of those TSLA winners last year (only got double digit gains because I was diversified among a few stocks back then) - which greatly increased my risk appetite. And then this one single stock got me.

There's no excuse for this.. I could have explained it away with GTAT's dishonest quarterly filings, but crooked CEOs and emotions do happen and are outside of my control. I'm probably still going to do stock picking for a small part of my portfolio - tech industry is still something I'm familiar with. But 80% of my money will be index funds plus rebalancing.
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TomatoTomahto
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Re: When people put all their eggs in the wrong basket

Post by TomatoTomahto »

Gmudhorse, welcome to the forum. If you're young, and with a tech job, you should have no problem making yourself whole again. Hang out here at BH a bit, it's a pretty knowledgable, friendly, and generous bunch.
I get the FI part but not the RE part of FIRE.
randomguy
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Re: When people put all their eggs in the wrong basket

Post by randomguy »

gmudhorse wrote: There's no excuse for this.. I could have explained it away with GTAT's dishonest quarterly filings, but crooked CEOs and emotions do happen and are outside of my control. I'm probably still going to do stock picking for a small part of my portfolio - tech industry is still something I'm familiar with. But 80% of my money will be index funds plus rebalancing.
Have you considered that those quarterly filings were accurate and that the CEO wasn't crooked? Maybe it will turn out this is an enron situation but right now it looks like a company who failed to execute or whose end product wasn't competive. Heck what do you think would have happened if everything the CEO knew was made public instantly. Do you think you would have been able to sell at 20 before the stock dropped to 2? Stuff happens when you invest in early stage startups with no product. Most of the time the blowups happen with VC money not public but it is part of doing business. The important part is not to blame others or the the same thing will happen to you again. You need to go in with your eyes wide open with the understanding that this company is super high risk and the odds favor it going to 0. That of course is balanced by the ability to make 10x your money if things work out.
gmudhorse
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Re: When people put all their eggs in the wrong basket

Post by gmudhorse »

TomatoTomahto wrote:Gmudhorse, welcome to the forum. If you're young, and with a tech job, you should have no problem making yourself whole again. Hang out here at BH a bit, it's a pretty knowledgable, friendly, and generous bunch.
Thanks mate. Guess I'm still one of the luckier ones that I had this happen while I'm young. That old dude with 750k+ lost.. I feel really sorry about him.
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MN-Investor
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Re: When people put all their eggs in the wrong basket

Post by MN-Investor »

I was just over perusing at the Contrarian board and found a 51-year old Harvard law graduate who apparently had been very successful in his own business. He gets progressively frustrated at GTAT's Board of Directors and management for not answering questions and frustrated at his fellow Contrarian posters for not being just as upset. He last posted a week ago, fed up with the Contrarian board, calling them sheep, saying he was done posting.

The dude owned 700K shares of GTAT! More than .5% of the outstanding stock of the company! I have no idea what he paid for those shares, but assuming $15/share, that's $10,500,000. That has got to hurt.
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Re: When people put all their eggs in the wrong basket

Post by normaldude »

MN-Investor wrote:I was just over perusing at the Contrarian board and found a 51-year old Harvard law graduate who apparently had been very successful in his own business. He gets progressively frustrated at GTAT's Board of Directors and management for not answering questions and frustrated at his fellow Contrarian posters for not being just as upset. He last posted a week ago, fed up with the Contrarian board, calling them sheep, saying he was done posting.

The dude owned 700K shares of GTAT! More than .5% of the outstanding stock of the company! I have no idea what he paid for those shares, but assuming $15/share, that's $10,500,000. That has got to hurt.
I looked at his profile, and it said..

StrayTrader was last seen: Viewing thread GT Advanced Technologies Inc. (GTAT), 42 minutes ago

So even if he no longer posts on that thread, he's still lurking..
ftobin
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Re: When people put all their eggs in the wrong basket

Post by ftobin »

normaldude wrote:
MN-Investor wrote:I was just over perusing at the Contrarian board and found a 51-year old Harvard law graduate who apparently had been very successful in his own business. He gets progressively frustrated at GTAT's Board of Directors and management for not answering questions and frustrated at his fellow Contrarian posters for not being just as upset. He last posted a week ago, fed up with the Contrarian board, calling them sheep, saying he was done posting.

The dude owned 700K shares of GTAT! More than .5% of the outstanding stock of the company! I have no idea what he paid for those shares, but assuming $15/share, that's $10,500,000. That has got to hurt.
I looked at his profile, and it said..

StrayTrader was last seen: Viewing thread GT Advanced Technologies Inc. (GTAT), 42 minutes ago

So even if he no longer posts on that thread, he's still lurking..
Not only was the poster long a huge amount of shares, he was short a huge amount of in-the-money puts, meaning he's obligated to buy at a (likely) high price -- he estimated it'd bring his long position expected 1% of outstanding shares of GTAT, with no change in price. If he had even more puts at lower strike price than what would contribute to the 1%, it might be in the 1.5% range.

To me, the behavior of the participants cheerleading their favorite stock seems to be good evidence for the value premium having a big behavioral component.
HurdyGurdy
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Re: When people put all their eggs in the wrong basket

Post by HurdyGurdy »

Be very welcome, gmudhorse. I am sorry about what happened to all of you. I hope this new chapter in your investing life will be a better one.
:beer
tsplinter
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Re: When people put all their eggs in the wrong basket

Post by tsplinter »

The lawsuits are for the benefit of the law firms, not the people who lost money.
If this canard makes you feel better, fine. But without attorneys working with no assurance they'll get a dime if the defenses of the malefactors hold up (as they often do), nothing would have been recovered on behalf of the poor innocent investor. Nothing! And the alternative would be to beef up public enforcement but those who complain about the private enforcement of security laws are usually not willing to belly up to that bar either. So what'll you have? A plague on all houses? I might join with you on that, but I wouldn't claim to be a victim if that's the world I'd signed up for. :wink:
tsplinter
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Re: When people put all their eggs in the wrong basket

Post by tsplinter »

danwhite77 wrote:
ftobin wrote:Even a Vanguard actively-managed fund got caught up pretty severely. Vanguard Capital Value fund had 2% of its portfolio in GTAT
Boggles my mind that any fund, Vanguard or otherwise, with the term "Value" in its name could have been holding GTAT. How is that a "value" company? Groupon is their second biggest holding. Groupon. A company with negative EPS and, of course, no P/E ratio (M* has a forward P/E of 42.5) is somehow a "value" company? Am I missing something here?
There are some Vanguard funds that may not be what you expect from the "Vanguard" label. I am a trustee of a pension fund that got clobbered by excessive investment in stock prior to the 2008 crash. The problem was concealed by our investment in the Vanguard Tactical Asset Allocation Fund. Vanguard did not manage the fund. The fund had a charter to invest in stock, bonds, or cash up to 100% in any one of these categories based on the tactical insights of a third party manager. Unfortunately, the tactical geniuses in charge of this "Asset Allocation" fund thought allocating 100% to stocks was the right thing to do in 2008. Throughout this period, we understood this was some kind of "balanced" asset allocation. I learned some lessons: (1) never to look too far down my nose at others who get conned by schemes I think are easy to see through and (2) not to take even the very honorable name of "Vanguard" at face value. To be fair, Vanguard warned in the prospectus that this should not be a "core" holding, but we didn't see that when the fund was recommended by our investment consultant to be 50% of our holdings. Having 50% of our assets in an "Asset Allocation" fund seemed to be very prudent. And I guest that goes to lesson 3: watch out for Funds that grab hold of whatever catch phrase is getting a lot of good press. That's HARD! If anyone is reading this comment, that's what you need to figure out. The devil will always sport the latest fashion!!!!

As dull (and herdlike) as the investing advice on this forum may be, it is an antidote to irrational fascination with the new new thing.
lululu
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Re: When people put all their eggs in the wrong basket

Post by lululu »

tsplinter wrote:
The lawsuits are for the benefit of the law firms, not the people who lost money.
If this canard makes you feel better, fine. But without attorneys working with no assurance they'll get a dime if the defenses of the malefactors hold up (as they often do), nothing would have been recovered on behalf of the poor innocent investor. Nothing!
Figuratively speaking, a dime is what they'll probably get. How many of us have gotten notices of class action lawsuits where we have some claim, and we net $0.67 or, worse, a minute credit on future purchases from the company, while the attorneys walk away with millions.
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Re: When people put all their eggs in the wrong basket

Post by lululu »

tsplinter wrote:
danwhite77 wrote:
ftobin wrote:Even a Vanguard actively-managed fund got caught up pretty severely. Vanguard Capital Value fund had 2% of its portfolio in GTAT
Boggles my mind that any fund, Vanguard or otherwise, with the term "Value" in its name could have been holding GTAT. How is that a "value" company? Groupon is their second biggest holding. Groupon. A company with negative EPS and, of course, no P/E ratio (M* has a forward P/E of 42.5) is somehow a "value" company? Am I missing something here?
There are some Vanguard funds that may not be what you expect from the "Vanguard" label. I am a trustee of a pension fund that got clobbered by excessive investment in stock prior to the 2008 crash. The problem was concealed by our investment in the Vanguard Tactical Asset Allocation Fund. Vanguard did not manage the fund. The fund had a charter to invest in stock, bonds, or cash up to 100% in any one of these categories based on the tactical insights of a third party manager. Unfortunately, the tactical geniuses in charge of this "Asset Allocation" fund thought allocating 100% to stocks was the right thing to do in 2008. Throughout this period, we understood this was some kind of "balanced" asset allocation. I learned some lessons: (1) never to look too far down my nose at others who get conned by schemes I think are easy to see through and (2) not to take even the very honorable name of "Vanguard" at face value. To be fair, Vanguard warned in the prospectus that this should not be a "core" holding, but we didn't see that when the fund was recommended by our investment consultant to be 50% of our holdings. Having 50% of our assets in an "Asset Allocation" fund seemed to be very prudent. And I guest that goes to lesson 3: watch out for Funds that grab hold of whatever catch phrase is getting a lot of good press. That's HARD! If anyone is reading this comment, that's what you need to figure out. The devil will always sport the latest fashion!!!!

As dull (and herdlike) as the investing advice on this forum may be, it is an antidote to irrational fascination with the new new thing.
Isn't there info in all the reports about what all the funds are holding, or at least what their largest holdings are?
lululu
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Re: When people put all their eggs in the wrong basket

Post by lululu »

Phineas J. Whoopee wrote: The guy who has to conceal from his mother she's $3,000,000 down, and worse, his mother who's been lied to by her own son and will never even find out unless there's a crisis where she needs the resources, or a meeting with an estate attorney for planning purposes, are a sad story.
I couldn't bring myself to go over there and read the stories. That story quoted above is the type of thing that made me as a young woman decide that I and only I would be managing my finances. Too many women wind up in the ditch because they depend on some male family member to manage their money.

$3,000,000 in one stock, that's certifiable insanity.
John C.
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Re: When people put all their eggs in the wrong basket

Post by John C. »

randomguy wrote:This was an extreme example of a stock that was going to go to 50 or 0 with not much in between. They bet everything on being able to make sapphire screens for iPhones and when that didn't happen, they were finished as a company. It worked out well for company employees who sold after the bump from 3 bucks to 15+. Not well for the people that jumped in towards the top. It is easy to blame management but I think you have to be pretty paranoid to think that these guys bet their company for a chance to do a pump and dump or that Apple failed to do due diligence before forking over 500 million dollars. Apple make a bet (sapphire might give them an edge) and hedged (gorilla glass back up plan). GTAT couldn't do that.
I too thought the iPhone was going to be sapphire when the tech blogs were buzzing about it. My peers are constantly breaking their phones because they can't stand cases. Sapphire comes along and it seems like a great idea to resolve this problem. But what about putting it to the test?

In this video it shows that sapphire really does not have an advantage over Gorilla Glass except scratch resistance. It's too brittle and breaks more easily on impact. This video was posted in August, and there are more tests/studies like it.

It looks like GTAT did mislead investors though into thinking their blend had something special.
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