The $8 Million Dollar Mistake

by Scott on July 21, 2011

The couple sitting in front of me was worth $10 million. I was just 12 months into my career as a full-time financial advisor and these folks were giving me a shot at the title. It had recently been a year from hell, driving around New England in chase of new clients and dollars, wondering how I was ever to make it in this cut-throat business. In front of me was what seemed to be my answer.

The husband, 44 year old Dave, and his wife Lisa at 36, had no kids and a whole shitload of money. As we like to say in the planning business, they had “made it”. He had worked at a high-tech company that had been bought by Lucent and she was in human resources at a large semi-conductor company.  After working himself to death over the past several years he wanted out, thus they were contemplating an early retirement.  Almost all their net worth was in their respective company stock, and only a portion was restricted (meaning Dave couldn’t sell it for another year).

My advice was to play it by the book. Sell what stock they could, diversify, retire, and enjoy life. It seemed like a no-brainer to anyone sitting across the table with a net worth of $0 and who was also eagerly anticipating the accompanying fees and commissions.

We had one problem; it was the Fall of 2000. “Who Let the Dogs Out” was a huge hit (a problem in and of itself), it was still cool to ‘raise the roof’ (if you were white and lived in New England), and the stock market was starting to spin out of control.  In their mind they should have been worth $12 million instead of $1o million. Although my plan made sense, and they knew they needed to diversify, they couldn’t pull the trigger. Their plan was to wait for the stock to bounce back. Greed was sitting at the table with us and it wasn’t leaving.

Just a month later their $10mm was worth $8.5mm. I was turning into Mortimer and Randolph Duke at the end of Trading Places as they tried to unload orange futures; “Sell you son-of-a-bitch…SELL!!!!”

The erudite Duke brothers in better days.

“It’s just paper” they tried to justify, but the tone was changing. Dave couldn’t admit he was wrong and dug in harder to his belief that things would get better quickly.  They didn’t. Within six months their net worth had dropped to $2 million, an $8 MILLION LOSS as Lucent became one of the casualties of the tech bubble.  In fact both their company stocks sank to the bottom and essentially stayed there, even through the next five year market rally. We eventually lost track of each other. Like jilted lovers, it was too painful for them and for me, to know what could have been.



The lessons:

  1. Go ahead and fall in love with your significant other, your pet, your kids, just never with an investment. There is a good
    chance that it will never love you back.
  2. It can’t be said enough, diversification is key. Most important is to diversify across different asset classes that are not
    necessarily affected by the overall stock market. Look for investments that offer good dividends that allow you to collect some income in bad times or can give you some guarantees.
  3. When is NOW a good time to diversify? When I was managing money everyone wanted to change their portfolio when the market was getting creamed. Don’t wait for your winners to become losers, make decisions from a point of strength. There
    is a reason PROFIT is not a four letter word.
  4. If you happen to have made $10 million, for the love of God, don’t blow it!! (Yes, I get paid for advice like that)

Do you have a disastrous investment story (it doesn’t have to be $8 million!), or a time when your  decisions were clouded by fear or greed? Please share them in the comments below or at the very least let me know what you think of this post.

Also, if you want to be a true A-Lister, make sure you sign up for my newsletter and I’ll roll the red carpet out for you (paparazzi not included).

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