When people put all their eggs in the wrong basket

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zaboomafoozarg
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When people put all their eggs in the wrong basket

Post by zaboomafoozarg » Tue Oct 07, 2014 7:51 pm

The quote "Put all your eggs in the one basket and --- WATCH THAT BASKET" often comes up in investing discussions that I read around the web, particularly in use by people who are convinced that a single stock will be their path to riches. On occasion I've tried to convince some of these people of the danger, but almost always am told that "this company is different and here is why". And when one of these companies does go under and people didn't see it coming, it's gut-wrenching to read through.

The GT Advanced (GTAT) bankruptcy announced yesterday morning, and subsequent posts on other forums, were a good reminder of this. The stock had been a high-flyer that gained over 400% in the past 2 years, but dropped from $20 to $10 in August, then down under $1 on Monday.

Some of the more notable posts are below, from different people who lost up to their entire investable net worth:
I have just lost all of my retirement and all of my son's savings. My son has special needs and I have failed him in the biggest way, sorry for posting this but I am totally devastated!!
I am dead meat. All my money is in GTAT and on my stocks I was doing margin. Since I owe way more than what's in there, I don't know what will happen to margin. Some people were smart, I believed so much in GTAT potential and lost all my savings including my 401K, IRA. At this point, I don't know what to do. I told my wife about this and she was upset and angry at my stupid move. But she still loves me.
Ouch. I lost a lot of money. Probably the equivalent of me saving diligently for the next 12-15 years. Well, only myself to blame.
I'm not coping well at all. I'm watching 25 years of savings going down the drain. I was stupid enough to have my entire retirement fund invested in this.
Its so painful...huge losses..all my savings are gone..It was purely management's irresponsibility that made all of us loose money here..I have two little kids and when I see thier face this morning, I can't stop crying...very pathetic...
I love you all. God bless and no one do anything irrational. It is just money.
Very sad to read. But an excellent reminder on the benefits of broad diversification, and of the good advice that is given here.
Last edited by zaboomafoozarg on Tue Oct 07, 2014 7:58 pm, edited 1 time in total.

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Phineas J. Whoopee
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Re: The danger of putting all your eggs in the wrong basket

Post by Phineas J. Whoopee » Tue Oct 07, 2014 7:56 pm

I'm very sorry for those peoples' misfortunes. I wonder what they would have written had the stock rapidly gone up by a factor of 20, rather than down by it.

We are wisely admonished not to confuse strategy with outcome.

PJW

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

Post by HurdyGurdy » Tue Oct 07, 2014 8:08 pm

:shock:

Truly, an education.

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

Post by staythecourse » Tue Oct 07, 2014 8:10 pm

One should never be happy at others misfortune, but some of those comments I think are SO IMPORTANT they should be stickied and put on every companies website more often then we see the cautionary tag on mattress that say "Do not remove"!!

I love saying that most stuff does not matter with investing, but do believe that single company risk is probably one of the top 2-3 reasons people have their retirement blow up in their face. There aren't many things that do that other then divorce, blowing it on coke and hookers, etc...

Personally, I try to learn from others so I am less likely to repeat the same mistakes as those before me do. Whenever, either on this site or others or with discussing with the older doctors around (best access to the WORST investing plans) the response to: "The dumbest single thing I did" almost always revolves around putting too much or all of your money in one single stock. The saddest thing is this MAJOR cause of self destruction is one of the easiest risks to ELIMINATE by just holding a mutual fund or index fund.

Can't understand why ANYONE would put so much faith into one thing (outside of your own spouse) especially when you hear stories like this over and over and over...

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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

Post by Trevor » Tue Oct 07, 2014 8:31 pm

Saw this gem on Twitter. Really shows how disconnected some people are from reality. Basically a gambling addiction :oops: :oops: :oops: :oops: :oops:





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

Post by Dopey » Tue Oct 07, 2014 8:39 pm

Wow.... with work being crazy, taking online masters classes, a new baby, and everything else... this makes me glad I found this message board and haven't even looked at my account balances in a couple months. I couldn't imagine having the stress of wondering if my entire retirement account would disappear overnight.

Bad thing is, I probably owned a bit of this stock!

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

Post by joe8d » Tue Oct 07, 2014 8:45 pm

I just wonder how many people put their money in that stock on the advice of "Advisors"?
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Re: When people put all their eggs in the wrong basket

Post by DonCamillo » Tue Oct 07, 2014 8:46 pm

I only became a Boglehead after I paid my tuition. Worked for AT&T, bought the maximum I could with ESPP, kept it through the dot Com bust. :oops:

But it would really be nice if people are smarter than I was, and could learn by reading this topic instead of graduating from the School of Hard Knocks.
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Re: When people put all their eggs in the wrong basket

Post by jfn111 » Tue Oct 07, 2014 9:03 pm

GTAT, Enron, GM and a whole lot of .com's over the years. Some people never learn the lesson. :(

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

Post by Yesterdaysnews » Tue Oct 07, 2014 9:09 pm

WOW. Crazy reading this stuff.

I believe some concentrated risk is OK and can pay off big time but your entire investable assets in one stock?

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

Post by mwm158 » Tue Oct 07, 2014 9:12 pm

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

Post by investor1 » Tue Oct 07, 2014 9:14 pm

DonCamillo wrote:I only became a Boglehead after I paid my tuition. Worked for AT&T, bought the maximum I could with ESPP, kept it through the dot Com bust. :oops:

But it would really be nice if people are smarter than I was, and could learn by reading this topic instead of graduating from the School of Hard Knocks.
If it makes you feel any better, I found this site when I started investing.

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

Post by lululu » Tue Oct 07, 2014 11:12 pm

That's really sad. Hard to know what to say to those folks. Start saving like squirrels, I guess.

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

Post by cheese_breath » Tue Oct 07, 2014 11:21 pm

joe8d wrote:I just wonder how many people put their money in that stock on the advice of "Advisors"?
I wonder how many employees put their money in the stock because of management misrepresenting the company's financial health.
The surest way to know the future is when it becomes the past.

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

Post by abyan » Wed Oct 08, 2014 12:06 am

Omg is that thread painful to read. Just went over there. Wow. I heard that the Apple had decided to pass on the sapphire screens for the new iPhone, but hadn't heard the company went bankrupt. Wow. I can imagine people investing it all, knowing the company inked a deal with Apple for the new iPhone, being "sure" that Apple would probably eventually buy the company out. The stock went up 6.5x last year alone. It was a sure deal.

Yikes.

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

Post by prudent » Wed Oct 08, 2014 5:49 am

My goodness, that one person lost $800K - everything he had saved for 15 years! In one stock! And it appears that group of people was following the company as closely as humanly possible, then had the rug pulled out.

I wonder how many others are doing the same thing - putting everything in one hot stock? Wow.

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

Post by mwm158 » Wed Oct 08, 2014 6:04 am

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

Post by obgyn65 » Wed Oct 08, 2014 6:20 am

Really sad to read these stories, especially from those with health problems or disabled children, and who lost significant amounts of money.
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Re: When people put all their eggs in the wrong basket

Post by Sheepdog » Wed Oct 08, 2014 6:37 am

Horrible. Here is just part of what one person, Bond007, wrote yesterday at 1:11 pm.
I won't make a comment on all of this. This fellow says it all. Very sad. These are just excerpts of his writeup of his losses.

Bond007 wrote

This would be my last post on this forum. I am officially signing off. Thanks for all the contributions. I am still in shock and all the money is gone and I owe $107K in margin accounts. I have prepared my profit and loss for filing a case and here the final numbers. This is a lesson for everybody not to be greedy and stupid. These are just stocks, options of around $140K is not in there.

Total in 401K $389,746.87

Total in Sharebuilder $435,695.52
Total sell Sharebuilder ($57,816.07)


Basically my net loss is around $750K in stocks and $140K in options. All my earnings for the past 15 years are gone in one night.

All I can wish is, all of family members of TG and the crooked directors face some grueling death. Yesterday I was in the verge of committing suicide myself and with a loving family, I didn't have the courage. Good bye to all. Time to start Life 2.0
It's not what you gather, but what you scatter which tells what kind of life you have lived---Helen Walton

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

Post by Twins Fan » Wed Oct 08, 2014 7:02 am

Yikes, sorry for their misfortune.

A nice confirmation for me as to why I'm here though. I hadn't even heard of GT Advanced until reading this thread. I don't study businesses and their management, and don't even want to. Let alone throw it all at one company. I will take the index please.

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

Post by Grt2bOutdoors » Wed Oct 08, 2014 7:22 am

Sheepdog wrote:Horrible. Here is just part of what one person, Bond007, wrote yesterday at 1:11 pm.
I won't make a comment on all of this. This fellow says it all. Very sad. These are just excerpts of his writeup of his losses.

Bond007 wrote

This would be my last post on this forum. I am officially signing off. Thanks for all the contributions. I am still in shock and all the money is gone and I owe $107K in margin accounts. I have prepared my profit and loss for filing a case and here the final numbers. This is a lesson for everybody not to be greedy and stupid. These are just stocks, options of around $140K is not in there.

Total in 401K $389,746.87

Total in Sharebuilder $435,695.52
Total sell Sharebuilder ($57,816.07)


Basically my net loss is around $750K in stocks and $140K in options. All my earnings for the past 15 years are gone in one night.

All I can wish is, all of family members of TG and the crooked directors face some grueling death. Yesterday I was in the verge of committing suicide myself and with a loving family, I didn't have the courage. Good bye to all. Time to start Life 2.0
Correct me if I'm wrong, but to my knowledge all brokers will close out the position if you fail to post margin in a margin account. How did this fellow wind up owing $750K? He shows a net long position in two accounts and a short in the other being only down $57K?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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

Post by ofcmetz » Wed Oct 08, 2014 7:26 am

I went over there and read the posts. How very very sad. It was a good reminder to me why I use broad based indexed funds and leave the gambling for the casino. I've known some friends who would never go to the casino, but will put small fortunes in individual stocks. Seems the same to me when a company that is reporting things as OK, can suddenly shock it shareholders this way.
Never underestimate the power of the force of low cost index funds.

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

Post by Riceman » Wed Oct 08, 2014 7:33 am

Thoughts:

-Well meaning though it may be to try to direct people to this forum, it's probably best to wait until the wounds have healed somewhat. I felt the same urge reading that thread.

-It is especially painful to see posters pledge to share new tips with each other, or discuss their strategy for making their money back by doing better research. In all of those posts, only a couple mention investing in ETFs/mutual funds as a lesson to learn from their experience. The few that mention it seem to do so begrudgingly, as if it's a last resort they still don't want to face.

-You can also see that posters are emotionally invested in the forum itself. It's like they are a club that shares exclusive information, cheers each other on, lives the highs and lows together, and probably share with each other their dreams of wealth. Several posters, in the wake of this tragedy, mention how glad they are to have the forum and how they will never leave it. I understand the sentiment here--whenever a tragedy strikes, one feels closer--even bound to--those who shared the experience. But the tragedy was not a natural disaster of third party creation. Their wipeouts, of their own making, were probably made more likely by their belonging to this very community.

-On that note, belonging to this kind of investment community could be classified as emotionally risky behavior that compounds risky investment choices.

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

Post by Grt2bOutdoors » Wed Oct 08, 2014 7:34 am

ofcmetz wrote:I went over there and read the posts. How very very sad. It was a good reminder to me why I use broad based indexed funds and leave the gambling for the casino. I've known some friends who would never go to the casino, but will put small fortunes in individual stocks. Seems the same to me when a company that is reporting things as OK, can suddenly shock it shareholders this way.
I won't even go to a casino, there the odds are stacked against you, say what you will regarding the stock market, but you have an even chance of getting out with most of your money, at the casino, the house always wins....one way or another. :twisted:
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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

Post by Riceman » Wed Oct 08, 2014 7:36 am

Grt2bOutdoors wrote:
ofcmetz wrote:I went over there and read the posts. How very very sad. It was a good reminder to me why I use broad based indexed funds and leave the gambling for the casino. I've known some friends who would never go to the casino, but will put small fortunes in individual stocks. Seems the same to me when a company that is reporting things as OK, can suddenly shock it shareholders this way.
I won't even go to a casino, there the odds are stacked against you, say what you will regarding the stock market, but you have an even chance of getting out with most of your money, at the casino, the house always wins....one way or another. :twisted:
In investing, Expense Ratios and bid/ask spreads are the house's cut.

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

Post by gd » Wed Oct 08, 2014 7:38 am

There are baskets, and there are baskets. Putting your life savings in a single niche company whose stock price is mostly dependent on the whims and largesse of Apple? People don't change their spots all that quickly, it'd be interesting to know their prior history of trading and investing.

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Re: The danger of putting all your eggs in the wrong basket

Post by 1210sda » Wed Oct 08, 2014 7:52 am

Phineas J. Whoopee wrote: We are wisely admonished not to confuse strategy with outcome.
+1 (This is one of Larry Swedroe's "mistakes even smart people make". Thanks Larry)

1210

PS: It's a harsh reality to realize that not all investors/speculators are BH's.

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

Post by Tom_T » Wed Oct 08, 2014 8:06 am

Riceman wrote:You can also see that posters are emotionally invested in the forum itself. It's like they are a club that shares exclusive information, cheers each other on, lives the highs and lows together, and probably share with each other their dreams of wealth. Several posters, in the wake of this tragedy, mention how glad they are to have the forum and how they will never leave it. I understand the sentiment here--whenever a tragedy strikes, one feels closer--even bound to--those who shared the experience. But the tragedy was not a natural disaster of third party creation. Their wipeouts, of their own making, were probably made more likely by their belonging to this very community.
Those types of forums tend to support groupthink. It's very common with penny stocks. Anyone who doubts the stock is shouted down and is routinely accused of having ulterior motives in order to get the price down. Sometimes the forum will have an administrator who will actually ban members who are considered to be "negative."

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

Post by letsgobobby » Wed Oct 08, 2014 8:07 am

It's hard to believe all of those posts are real.

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

Post by parsi1 » Wed Oct 08, 2014 8:14 am

I was tempted by Facebook, I was tempted by Alibaba. Once in a while I get tempted to move to riskier assets since I think I have too much in bonds. But every time, with market gyrations like recent weeks and reading links like this I tell myself that being a Boglehead is the best option, and that has been saving my investments.
Thanks to all you guys who contribute to this forum and keep us straight.

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

Post by montanagirl » Wed Oct 08, 2014 8:27 am

and I was stressing over an extra 2 pc in TSM...wow :o

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

Post by ofcmetz » Wed Oct 08, 2014 8:44 am

Grt2bOutdoors wrote:
ofcmetz wrote:I went over there and read the posts. How very very sad. It was a good reminder to me why I use broad based indexed funds and leave the gambling for the casino. I've known some friends who would never go to the casino, but will put small fortunes in individual stocks. Seems the same to me when a company that is reporting things as OK, can suddenly shock it shareholders this way.
I won't even go to a casino, there the odds are stacked against you, say what you will regarding the stock market, but you have an even chance of getting out with most of your money, at the casino, the house always wins....one way or another. :twisted:
I guess my point is that the act of investing your entire 401K, nest egg, etc. on a single stock is a very similar act to the type of behavior that goes on in a casino. There is a high probability of a big win or loss. I look at that as gambling, just on a much bigger scale. The same person I know who didn't want to put $5 on a hand of blackjack while we were on vacation, would put $thousands in some $1 stock that he got a tip on.

I don't view investing for the long term with broad based equity mutual funds as gambling and think it is totally different than going to the casino.
Never underestimate the power of the force of low cost index funds.

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

Post by bhsince87 » Wed Oct 08, 2014 8:55 am

On the other hand, people who bought in on Monday morning have doubled their money already!

Of course, by the time I post this, they might be back to even. Or down 50%. Or up 200%. Or.....
Retirement: When you reach a point where you have enough. Or when you've had enough.

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

Post by randomguy » Wed Oct 08, 2014 9:10 am

Grt2bOutdoors wrote:
Sheepdog wrote:Horrible. Here is just part of what one person, Bond007, wrote yesterday at 1:11 pm.
I won't make a comment on all of this. This fellow says it all. Very sad. These are just excerpts of his writeup of his losses.

Bond007 wrote

This would be my last post on this forum. I am officially signing off. Thanks for all the contributions. I am still in shock and all the money is gone and I owe $107K in margin accounts. I have prepared my profit and loss for filing a case and here the final numbers. This is a lesson for everybody not to be greedy and stupid. These are just stocks, options of around $140K is not in there.

Total in 401K $389,746.87

Total in Sharebuilder $435,695.52
Total sell Sharebuilder ($57,816.07)


Basically my net loss is around $750K in stocks and $140K in options. All my earnings for the past 15 years are gone in one night.

All I can wish is, all of family members of TG and the crooked directors face some grueling death. Yesterday I was in the verge of committing suicide myself and with a loving family, I didn't have the courage. Good bye to all. Time to start Life 2.0
Correct me if I'm wrong, but to my knowledge all brokers will close out the position if you fail to post margin in a margin account. How did this fellow wind up owing $750K? He shows a net long position in two accounts and a short in the other being only down $57K?
He doesn't owe 750k . He lost 750k(and another 140k in options). He owes 100k. If a stock is dropping slowly, the broker will close you out quick enough that you don't owe money. For example, you buy 1 million in stock using 750k of cash and 250k of leverage. If the stock drops to 500k (50%), the broker might close you out so you end up with 250k. However if the stock drops to 100k (90%), you end up owning 150k.

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

Post by iceman » Wed Oct 08, 2014 9:14 am

Thanks for linking, this has been really eye-opening. I discovered indexing very early on when I started investing; for me, the argument that institutional investors would dwarf any research abilities I had made a lot of sense, and in that vein "settling" for average via indexing made complete sense. Obviously I know that there are day-traders, etc, but really crazy to see people investing all of their retirement savings in one stock. If I stop and really picture it, it makes me panicky just to think about.

Even if you really believe in your ability to do fundamental analysis and come out on top, this quote is interesting:

"What ticks me off is that while we shareholders were burned, this company will probably emerge from this and we won't be part of it. If I look at this someday in the future and see it is a rocking company, it's going to hurt."

You can foresee upside, be right, but still get burned. It's a real-life example of the uncompensated risk of not diversifying.

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

Post by TSR » Wed Oct 08, 2014 9:17 am

Riceman wrote:*snip*On that note, belonging to this kind of investment community could be classified as emotionally risky behavior that compounds risky investment choices.*snip*
This is a very interesting thought and probably not studied enough.

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

Post by rob » Wed Oct 08, 2014 9:27 am

Tom_T wrote:Those types of forums tend to support groupthink.
Sorry to jump on this one comment but I think we all have to be careful... I would swap "Those" to "These" including this one.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

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

Post by Chan_va » Wed Oct 08, 2014 9:29 am

Tom_T wrote: Those types of forums tend to support groupthink. It's very common with ..... Anyone who doubts the .... is shouted down and is routinely accused of having ulterior motives in order to...... "
The same could be said (to a lesser extent) about this forum. Good reminder to keep an open mind about anything in life.

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

Post by bungalow10 » Wed Oct 08, 2014 9:39 am

letsgobobby wrote:It's hard to believe all of those posts are real.
I have the same feeling. What's to say these folks were big talkers who were exaggerating how much they made with this stock, only to turn around an exaggerate on how much they lost (in order to keep up the charade). I've spent enough time in other finance-based forums to know these folks exist.
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Re: When people put all their eggs in the wrong basket

Post by technovelist » Wed Oct 08, 2014 9:55 am

Grt2bOutdoors wrote:
Sheepdog wrote:Horrible. Here is just part of what one person, Bond007, wrote yesterday at 1:11 pm.
I won't make a comment on all of this. This fellow says it all. Very sad. These are just excerpts of his writeup of his losses.

Bond007 wrote

This would be my last post on this forum. I am officially signing off. Thanks for all the contributions. I am still in shock and all the money is gone and I owe $107K in margin accounts. I have prepared my profit and loss for filing a case and here the final numbers. This is a lesson for everybody not to be greedy and stupid. These are just stocks, options of around $140K is not in there.

Total in 401K $389,746.87

Total in Sharebuilder $435,695.52
Total sell Sharebuilder ($57,816.07)


Basically my net loss is around $750K in stocks and $140K in options. All my earnings for the past 15 years are gone in one night.

All I can wish is, all of family members of TG and the crooked directors face some grueling death. Yesterday I was in the verge of committing suicide myself and with a loving family, I didn't have the courage. Good bye to all. Time to start Life 2.0
Correct me if I'm wrong, but to my knowledge all brokers will close out the position if you fail to post margin in a margin account. How did this fellow wind up owing $750K? He shows a net long position in two accounts and a short in the other being only down $57K?
Yes, the broker will close the account ASAP if you go below the minimum margin requirement.
But if the stock closes at $10 one day and opens at $1 the next day, they won't have the ability to close the account in time to keep you above water.
In theory, theory and practice are identical. In practice, they often differ.

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

Post by Grt2bOutdoors » Wed Oct 08, 2014 10:08 am

This one is the worst post so far:

I am totally numb. Just got home after working. I saved this money for over 25 years and it is gone in a day. I haven't sold my shares because I just don't know if the shares will be worthless soon or any chance that they may come back. I bought at $18 and 18.25 and have about 4700 shares. This is everything. My retirement and my savings for my son and me. This is so hard for me to take in because my son has special needs and this was for him and his future, especially when I'm not here any longer. He is getting of the bus soon so I need to dry my tears and put on a smile. He is the best son a mother could ever wish for. I just feel and know that I have failed him and trying to figure out what to do. Should I sell now and at least have a couple thousand for us to at least have a few weeks to figure out what to do. I feel for everyone on here who lost. I was advised by someone who I trusted dearly not to sell. My instincts told me otherwise but I put my trust in this individual because I just felt so inept at trading and believed he knew much more than me. I will more than likely have to sell our home and struggle with this only because change is so difficult for my son. I apologize for venting but I am too ashamed to share this with my family or friends. I shared this with the person who advised me to hold and my messages go unanswered. Funny, that's the same response I got when I emailed GTAT's IR over the past few weeks. I truly wish the best for everyone on here who has suffered losses. Page 519 of the thread.

Ugh! :(
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greg24
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Re: When people put all their eggs in the wrong basket

Post by greg24 » Wed Oct 08, 2014 10:12 am

Unfortunately, greed has a large part in such an undertaking.

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

Post by TravelforFun » Wed Oct 08, 2014 10:28 am

greg24 wrote:Unfortunately, greed has a large part in such an undertaking.
Agree! Stupidity didn't cause those people to put all their money in one stock. Greed did. The same greed that lures older folks to investment lunches and dinners.

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

Post by Johno » Wed Oct 08, 2014 10:32 am

technovelist wrote:
Grt2bOutdoors wrote:
Sheepdog wrote:Horrible. Here is just part of what one person, Bond007, wrote yesterday at 1:11 pm.
I won't make a comment on all of this. This fellow says it all. Very sad. These are just excerpts of his writeup of his losses.


Correct me if I'm wrong, but to my knowledge all brokers will close out the position if you fail to post margin in a margin account.


Yes, the broker will close the account ASAP if you go below the minimum margin requirement.
But if the stock closes at $10 one day and opens at $1 the next day, they won't have the ability to close the account in time to keep you above water.

In this case the stock fell during the trading day, and many brokers now close out positions in real time when margin is insufficient. But it doesn't help in a case like this. The stock was trading at low volume around $11 just before 10AM Monday, the announcement hit, and there was virtually no volume between ~$11 and $1, then huge volume around $1, probably the first trades such broker automated close out systems were able to make. Leveraging a completely non diversified position is needless to say a particularly toxic combination.

But I wonder whether some internet trolls join in with more and more exaggerated sob stories. One can imagine terrible results for such a violation of common sense as investing all your many years' life savings in one stock, and I believe that some people are unwise enough to do that, but some of the posts could be fictional I think.

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

Post by technovelist » Wed Oct 08, 2014 10:44 am

No, I'm afraid I have no trouble believing these stories, not to say that some of them may not be trolls. There are plenty of people who do things just as insane as that.
In theory, theory and practice are identical. In practice, they often differ.

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

Post by Traveller » Wed Oct 08, 2014 10:58 am

I just followed the link and read through many many posts. I feel very sorry for some of the folks who got hit so very hard.

Also, a few other thoughts came to mind as I was reading:
1) there is SO much blame toward the company (accusations of fraud and intentional deceit). Maybe there was and maybe there wasnt. I realize much of that is a defensive reaction, but it jumped out to me how blaming others is the natural reaction for many.
2) there are also many comments such as "how could this happen when financials have been so strong and we have done so much detailed analysis"... Yet if you look at the financials and recent financial/annual reports the company had a lot of cash AND a lot of debt AND made several comments on the massive capital investments they made in some facility in Mesa AZ which would support materials they intended to produce for apple. Looks like the company itself had too many of it's eggs in one basket (AAPL). I could be way off as I never heard of this company before reading this thread.

No stone casting here as I've done similar - I remember my brilliant investment in the company who built the Stratosphere Casino a long time ago. I rode that stock straight into bankruptcy as well (fortunately just some play money).

Anyway, my heart goes out to those who learned a very painful lesson.

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

Post by prudent » Wed Oct 08, 2014 10:59 am

Grt2bOutdoors wrote:This one is the worst post so far:

I am totally numb...[snip]

Ugh! :(
That's heartbreaking. A person who KNOWS she is not experienced puts all the money into a stock and lets someone else call the shots, and resists her own instincts to bail out. Thinks she's going to lose her home.

I wonder who the "trusted advisor" was - a friend, a paid advisor, another member of that message board, etc.

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

Post by TomatoTomahto » Wed Oct 08, 2014 11:14 am

grt2boutdoors wrote:This one is the worst post so far: ...
It reminded me of a single mother who had been talked into investing most of her money in baseball cards, for the benefit of her son who was intending to attend college and med school. She at first didn't believe me when I told her that they were worth a small fraction of what she had paid. She assumed that they'd be worth 10x what she paid. I explained that, as a consignment seller, I'd be happy if I could get her that, but that in the end, they're pictures printed on paper, and worth only what someone else was willing to pay.

I don't know if the stories on that site are all true, but even if only a few are, they are heartbreaking. True, most of the people got greedy, but I don't see it as a character fail if you get greedy trying to provide for your child. Many of us here might know better, but there for the sense of a BH ...
Okay, I get it; I won't be political or controversial. The Earth is flat.

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

Post by abyan » Wed Oct 08, 2014 11:21 am

Just read this over there. It appears the lesson has not been learned for all:
I know... this is too late
Three rules.

1. If you want to invest on your own...ability to analyse the Balance Sheet should be the RULE #1
2. Pick three to four good stocks and avg down on the buy and avg up on the sell.
3. 30-50% cash on the side lines...to go in and out ... (avg down and avg up.)

Again... I feel really sorry...for those who lost everything or a lot of their portfolio. I have been through this before...and I know... how it feels.
Fortunately... I did leaps on GTAT... so the damage for me was limited. I will have another day to fight (doing the three rules).
Yes, the problem was that you had your life savings in one stock and not 3.

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

Post by fposte » Wed Oct 08, 2014 11:24 am

Traveller wrote: Anyway, my heart goes out to those who learned a very painful lesson.
I have a lot of sympathy for these people, because it's clearly been a hard thing for many of them, but I'm not sure if they're really learning a lesson. As you say, they seem to be intent on making the narrative into their being victims of a crime or at least of a totally unforeseeable situation, rather than their making a mistake that they could prevent from recurring by changing their investing behavior rather than the stock they pick.

The one poster who perceptively said, "Maybe the mistake here is the cult like following of a few seemingly informed people. I don't know, think about it... How would you avoid a situation like this next time?" seems to be completely drowned out.

I don't think it's simply greed, either, or at least no more than my greed in investing in Total Stock Market to have money for retirement. I think there's probably a combination of ignorance about risk, ignorance about one's ability to tolerate risk, and minimization of the risk likelihood because of the echo chamber effect, plus a few other factors floating around.

I hope they make it through okay and find a better way in future.

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