Where were you on December 2nd, 2001 and why does it matter? In case you forgot, that was the day Enron filed for Chapter 11 bankruptcy protection. If that seems like a really long time ago, you’re not alone. This wasn’t the largest corporate bankruptcy in history, but it sure got plenty of airtime given the swiftness at which it came about. Additionally, it took down their auditing firm as well, Arthur Anderson who knew plenty well before the information became public.
The usage of off balance sheet special purpose entities and other less than ethical tactics left shareholders footing the bill for their corporate greed. But that doesn’t happen very often, right? As investors, we learn our lesson and never fall for that again…right? As we plowed forward into the future from 2001, several other corporate failures dotted the landscape. And then there was 2008-2009 when we were reminded of just how nasty a bear market could be.
Fast forward to 2017 and we find ourselves in a much different landscape. This bull market has been on a nice run these past few years and I am not complaining one bit. It’s almost hard not to check our brokerage and retirement accounts way too frequently with the gains we’ve been witnessing. But as investors, our memory can get very shortsighted, very fast.
Hopefully, you are maintaining your long term investing strategy and asset allocation plan. Looking at short term returns of the past, say 3 years, can get you pretty excited but can also be super dangerous. What comes up must come down, eventually.
The Sucker Bet That Was $NAK
Investing in precious metals always seems intriguing, however doesn’t fit my long term investment strategy at any reasonable level. I recently found this slimy sales pitch about investing in a company owning an immense untapped reserve of gold and some other less sexy metals. I didn’t watch enough of the pitch to find out the ticker, but from the facts they were displaying, it was easy to tell who it was coming from.
A quick review of the company’s books yielded enough data to have me shaking my head. No earnings, assets were primarily holdings in the largely unproved Pebble Project, and dwindling cash on the balance sheet. By the time I even found this article, the stock had ripped north of $3/share. The pitch centered around the fact that we are under a new administration who would certainly authorize this mine, despite the fragile ecosystem of Alaska where the Pebble Project reserve is located.
I watched as it creeped higher, no real reasoning other than maniacs bidding up the price with each other. Then, news of a class action lawsuit against the company by it’s shareholders for allegedly defrauding investors. That was all it took to send shares plummeting and investors heading for the hills.
This is a relatively small example and likely won’t even hit many investors radars. But the message and the lesson is teachable nonetheless. If you vary from a really boring broad market, index fund style investment approach, know your tolerance for risk and stick to it.
Plenty of fortunes have been made in stock picking, but plenty more have been lost. I am optimistic for the long term and hopefully this bull market has plenty of life left in it. History does however have an uncanny way of repeating itself.
-The Fiscal Savant-
*This information is intended for entertainment purposes only and should not be construed as investment advice. The editor has never been and is currently not long or short NAK.