A small epiphany

Today, I took a step towards a more sensible appoach to my investing future. I had allowed myself the license to purchase a few companies purely out of interest in their technology. They qualified as speculative investments. I was caught up into the excitement of others who had similar interests, expressed very eloquently in messages on an emerging technology blog.  Ultimately I put about 4% of my entire portfolio into 3 companies. As of today, they are worth less than 20% of what I paid to own them.
Lesson learned...twice. A long time ago, I bought Ballard Power, also an emerging technology stock. I took a bath there too. Eventually, a competitor, Plug Power, developed a saleable product and has reached some scale, but even that stock is still speculative in nature,  with valuation based much more on hopes of future earnings than present revenues. I should have learned my lesson then.

I got stuck in that " no loss until realized loss" thing.  I hoped that things would turn around. I watched others throw in the towel. I told myself that it was speculative money that I wasn't afraid to lose. But the emotional impact of watching that value continually erode took it's toll on me and I finally realized that there was no emotional value in "getting back to even",  only some value in putting the cash value of those shares into more prudent investments whose business fundamentals are more sound.

In short, I need to  exercise discipline with ALL of my assets and stop allotting "mad money" to speculative investments within my retirement portfolio. So, I'm selling those depreciated shares. No more flights of fancy in my portfolio.  I'm planning on taking some of that advice I've been reading;  don't invest in companies whose business model you can't understand. That means ditching some pretty high flying, high yielding companies. I'll be looking really hard at those MLPs. I'll be getting more conservative and accepting lower yields. The portfolio will look more large-cap, blue-chip in nature. Rather building higher yield higher risk on top of the blue-chip foundation, I'll be be building lower yield higher growth on top of the blue chip foundation.

When you hold a stock that has lost a lot of value, you either have to bet on that stock rebounding, or you have to find another investment to carry the load of building back the value of that piece of your portfolio.  If a stock tanks, you have to be convinced that it has nothing to do with the business model, the prospects for growth, earnings and profits, or you should bail and ride a different horse.

Investment prospects are about looking forward. The rear-view mirror does tell you about how the company has performed heretofore, and a meltdown based on internal issues should certainly tell you that management has some fundamental issues to explain and/or correct.

I'll be doing some clean-up come Monday...