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The technology boom of the ‘90s romanticized the “rags-to-riches” ideal that all of us dream about when investing. For those that invested $1000 in Dell at $5 during 1990, held through the seven splits, then sold in March 2000 at $59, the dream was a reality. That investment would have returned an amazing $1,132,800! Image making over $1 million for every thousand dollars invested. Beyond Dell, companies like EBay, Amazon.com, and many others made their investors very wealthy.
Unfortunately, the ‘90s provided a different investment environment than we are use to. We experienced the birth of a new technology and it required new companies, jobs and consumers to fill the needs of the industry. Immediately, our economy had a new demand with limited supply. This led to the feeding-frenzy stock purchasing that we all witnessed.
Once reality settled in, too many companies were heavily leveraged, over-extended in equity, and/or did not have revenues to support their business models. The sudden collapse of mega-companies like Webvan, the online grocer that wasted over $750 million, became highly responsible for the economic problems that we faced earlier this century.
Moral of this story: Invest to make money, not to get rich.
One lessoned learned during the ‘90s was the importance of due diligence; researching company financial records, management philosophies, growth strategies, etc. Doing so allows investors to find strong investment opportunities and minimize the risk of purchasing a bankrupt company.
Investing to make money stresses the need to evaluate financial goals and taking steps, not leaps, to get there. The oil boom of the year has brought about several high return stocks; doubling or tripling in a matter of months. Taking advantage of one of these stocks is a giant leap, but finding a 200% gain might require 7-8 25% losses. Ultimately, an investor could lose more than gained.
With solid research, finding companies capable of returning 10-20% growth per year has a high probability. While not as romantic as a single high-return investment, five 20% gains equals the return of a single 100% gain. This is the meaning of taking steps. Settle for solid returns and repeat the process as many times possible. While not every stock will produce 20%, selecting strong companies will limit your risk for large losses.
About the Author
DPB Financial – www.dpbfinancial.com
*The information within this article is for educational purposes only and is not being provided as investment advice. DPB Financial recommends that investors do their own due diligence or solicit the advice of an investment professional.*
Written by: DPB Financial
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