My Dumbest Investment: Down 99.88%
My dumbest investment was in a penny stock for a nutritional food products and supplements company. I paid $0.87 per share when it was a hot penny stock, seven or eight years ago; it’s now down 99.88%. After the fact, I did the research I should have done earlier and learned that the company address was a house in a subdivision. I keep the stock in my account to remind myself to do research BEFORE buying. This dumb move turned $3,000 into $3. — G.W., online
The Fool responds: You’re one of countless investors, often new ones, who get snookered by penny stocks (those trading for less than about $5 per share). There’s a good chance that you read somewhere online that the company was going to become a huge force in supplements, and you thought its price, below $1 per share, was a bargain. The truth, though, is that many penny stocks are tied to tiny, shaky — or shady — companies that are unprofitable. It can be hard to find reliable information on them, too. For example, the website for the company you mentioned doesn’t even include its financial statements. It can be easy to assume that a stock can’t fall far below $0.87 per share, but the stock was recently at $0.0003 per share, with a total market value near $175,000 — less than half the median sales price of homes in the United States.
Ask the Fool
Q: How can I determine a company’s intrinsic value? — C.W., Columbus, Ohio
A: You correctly understand that while a stock’s price reflects its current market value, its intrinsic value is what each share is truly worth. There’s no universally agreed-upon intrinsic value, though: It all depends on factors such as estimates of future earnings and growth rates — and on which factors you use. Savvy stock analysts will often disagree on a stock’s intrinsic value.
If you can estimate an intrinsic value for a stock, you might consider buying shares if the current price seems well below that value or selling if it’s well above it.
Note that simply hanging on to great stocks for many years, through ups and downs, can also be enormously profitable.
Q: If my 401(k) account doesn’t offer any index funds and I want to invest in one, what should I do? — P.L., Watertown, Wisconsin
A: Index funds are great choices for most of us, as they require little work from investors and they often outperform many respected mutual funds.
Start by contacting your company’s 401(k) administrator to ask that they add an index fund or two. Then move on to Plan B, investing in index funds on your own, through your brokerage or the websites of mutual fund companies. Charles Schwab, Fidelity and Vanguard, among many other brokerages, offer a variety of low-fee index funds. Exchange-traded funds (ETFs) often track various indexes too, and they trade like stocks, so you can invest in them through a brokerage account. Some to consider include the SPDR S&P 500 ETF Trust (SPY), the Vanguard Total Stock Market ETF (VTI), the Vanguard Total World Stock ETF (VT) or the Vanguard Total Bond Market ETF (BND).
Fool’s School: Women and money
Just like men, women need to be saving and investing for their futures.
In fact, it’s arguably even more vital for women: For one thing, women, in general, have earned less, and many leave the workforce for a few years to raise children or care for others. Also, women tend to live longer than men, so whatever nest eggs they amass will need to support them for longer.
But most people, no matter their gender, have never learned much about investing, and many are intimidated by the stock market. Women actually have an edge there, though: The folks at Fidelity Investments studied the performance of 5.2 million customer accounts between 2011 and 2020 and found that women’s accounts had returns 0.4% higher than those of men.
Anyone can invest effectively in the simplest of ways: Park long-term dollars (those you won’t need for at least five, if not 10, years) in a low-fee, broad-market index fund, such as one that tracks the S&P 500 or the entire U.S. or world stock market. Even if you average only 7% annual growth, socking away $10,000 annually in the market for 25 years can get you to over $675,000. Start learning at Fool.com and Finra.org/investors/personal-finance.
– Distributed by Andrews McMeel Syndication
