My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Tuesday, February 8, 2011

Lessons Learned by an Investing Dummy

In life, one makes numerous mistakes; some costly from a personal relationship perspective and some costly from a financial perspective. A friend of mine was recently complaining about a dumb move he made in the stock market and it got me to thinking of some of the less than intelligent moves I have made investing.

For anyone who is a reader of my blog, my Resverlolgix investment is definitely the number one costly mistake. For those who have not read the blog, it is a November 2010 blog called “Resverlogix, A Cautionary Tale” and it is one of my better ones (blogs and investment mistakes) if I do say so myself.

Notwithstanding that disaster, I have also made two errors in regard to playing cute with the bid and ask price on both the sale of a stock and the purchase of a stock. About ten years ago I purchased a stock involved with the debit machines at grocery stores and alike. It was actually a great call on technology which I will discuss further below, but the company was bleeding and I decided to sell. The stock was $2.10 to $2.12 and I was so upset with the stock that I decided I was not going to lose any more money and put my shares up for sale at $2.12. My order did not get filled and the next day the company came out with bad financial news. When everything settled, the stock was worth 40 cents and I had lost another $1.70 per share over two cents.

What do they say about it being okay to make an error once, but if you make the same mistake twice then you’re an idiot? Well, hello. This year I decided to purchase a stock that was trading around $3.90 to $4.10. It was in that trading range for weeks, so I put in a bid for $3.90. I got a partial fill at $3.90, but it hovered around $3.95 to $4.00 for days. Of course, a week later it announced some good news and went to $4.40 and I decided I would not chase it, which is a good rule in general. The only problem is two weeks later they announced a significant licensing agreement and the stock went to $8. At least I had a small fill, but still, I lost out on a $4 gain by trying to buy for ten cents less.

So, lesson number one: once you decide to buy or sell, just do it if the bid and ask is within a reasonable range.

As noted above, I had made a good call on the debit card technology; however, I was too early to the game. Stocks in companies promoting disruptive technologies have unbelievable upside, however, the more disruptive the technology, the longer to market and the more financing problems the company is likely to have.

Thus, lesson number two: stay away from a stock involved in a disruptive technology unless you are willing to put it in the speculative portion of your portfolio and to leave it there for up to ten years, if it survives.

Lesson number three: stick to your guns.

I had a couple of stocks that I held for years during which they barely moved from the initial purchase price. I lost patience and sold and saw both the stocks triple within one year of my selling.

This lesson can also be called the “Ask Mark what he has recently sold and then buy it” lesson.  

The above is pretty tongue-in-cheek, but it is really important to establish personal guidelines in regard to buying, selling and holding stocks and similar investments.

R.I.D.E. Rant

I have a guest rant today on the Toronto R.I.D.E. ("Ride") Program from a friend of mine. The rant hit home with me, as I had the same experience with Ride, except I  was casitigated for chewing gum and was  told that if I dropped the wrapper that contained the plastic piece to blow into the breathalyzer, I would be  fined $100 for littering. Not to give away the ending, but I also blew the same number as my friend. 


Some Sobering Thoughts about the Toronto R.I.D.E. Program

I have always been an advocate of conceding some of my individual rights for the good of society as a whole – including the random testing of potentially drunk drivers.  I thought that if I ever was stopped by such a program, I would gladly participate if such programs can keep drunk drivers off of our roads.

While I still am onside with such a premise, I believe that the ‘decision-tree’ used by the Toronto Ride program is somewhat flawed – based on my first hand experience last night.  Please note that this is not a criticism of any policeman who follows procedure but rather a criticism of the instructions that policemen receive to execute this program.

Last night I was out with my wife and a few friends.  We had a dinner reservation at 7:45pm which was to be followed by a late movie at 9:50pm.  We ordered one bottle of wine for the 5 of us – and I partook in about 1 glass of that bottle – mostly consumed before 8:30pm.  I did not consume anymore alcohol of any kind that night.

After watching the movie, we went to our car, pulled out of the parking lot and then started to head home just after midnight.  I approached an intersection and started to turn right – towards what at first look like police cars attending to an accident – but eventually recognized that it was a Ride testing program – where the police were stopping cars in both directions.   My wife and I briefly thought of pulling a U-turn to avoid the spot check but felt that would be inappropriate as I had no reason to flee (as I was certain I was under the 0.05 blood alcohol limit).

As we approached the spot check, I rolled down my window – and was asked by a policeman if I had had a drink tonight.  I responded that I had one glass of wine about 4 hours earlier with dinner – and had subsequently seen a movie (to provide him some timelines).  I did not have any alcohol on my breath nor was I in any way incoherent nor slurring my speech.  The policeman asked me to pull over and park in the middle of the street.

Process Error #1

If I had answered that I had not had a drink, I would not have been asked to pull over as they had no other reason to interrogate me.  I answered truthfully – and was penalized for doing so.  As my business partner often tells me – desperate people do desperate things – if someone might be concerned about being over the limit, they might have either made the U-turn that I decided not to make to avoid this ‘trap’ (by the way, with no consequence as I observed others doing it afterwards), or answered ‘no’ to the policeman’s question and potentially avoided my current predicament.  My honesty was the key to their decision to pull me over.  This process is flawed by reflecting on the Liar’s Paradox – much akin to reflecting on the merit of someone stating: ‘this sentence is false’.

But I had nothing to hide – so I played by the rules.  Rather than asking me to ‘blow’ right away,  the policeman asked me for my driver’s licence, my insurance certificate and my ownership certificate – and then went away to analyze same.  I thought this was a random spot check for drunk driving – not an assessment of whether all my paperwork was in order – which, by the way, it was.

Process Error #2

If the primary objective of this random trap is to test for elevated blood alcohol levels, why did the pre-test process take in excess of 10 minutes prior to finally being asked to ‘blow’ – as, if my blood alcohol level had been border-line, this could have given me time to sober up.  They could always have done the paperwork afterwards – but the process order seemed odd to me – and contrary to their primary purpose.

I was then asked to walk to the patrol car for a breathalyzer test – ie to ‘blow’.  While walking to his car, I realized that, due to the fact that my car was in one of two ‘stop’ zones in the middle of the street, and that the other spot was similarly occupied, the spot check program was put on temporary hold – as cars were now being waived through without their drivers even being asked the question I was.  This program seemed to entail at least 4 police cars and at least 8 policemen – which was now all on hold as they interrogated me and one other person.

Process Error #3

           This program had effectively ‘trapped’ me – for all the wrong reasons noted above.  But, as a result of trapping me, this very expensive program (ie based on manpower and vehicle power tied up while testing me), was potentially missing out on catching those who were much more likely violators of our drinking and driving laws. 

As I walked to the patrol car – I started to get a bit nervous – as, while I knew that I should easily pass this test based on my extremely limited consumption of alcohol that night, what if my blood system worked differently from others and I was not able to process the alcohol in my blood as quickly as everybody else – or what if the equipment did not work correctly and displayed a false positive. 

After the policeman demonstrated how to properly ‘blow’ into the machine, my heart started to race a bit.   I blew into the machine – and somehow had blown incorrectly and need to do it again – creating more stress and concern by me.  Finally, I was able to ‘blow’ correctly - and recorded a blood alcohol level of 0.00!

Final Thoughts

While I still agree with the concept of the spot check program, the decision-tree process seems deeply flawed and needs rework.  If it is truly random, then stop random cars and test all stopped drivers – rather than relying on a process that itself gets captured within the Liars Paradox- especially if there is no alcohol on the driver’s breath or slurred speech… Finally, if someone is to be tested, it should be done without delay to maximize the effect of alcohol currently in their system.    

This program can work for all of us – but, to be more effective, the process decision-tree needs some work first.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

3 comments:

  1. Mark, I have had a similar experience with the bid and ask, I no longer play it cute.

    I get the point of the RIDE rant, but I thought I was reading war and peace by the time I got to the end of the rant, your friend is a bit verbose.

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  2. Ha, I cant wait to tell him what you said. Call it the curse of intelligence

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  3. I oppose drunk driving and checkstops. I might be okay with checkstops if officers limited themselves to checking for drunk drivers and never charged anything else. Instead, most of the infractions they issue are for not having one's paperwork in order, not wearing a seatbelt, etc. This isn't Soviet Russia.

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