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1st Stock Failure-Lesson Learned

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Jul 9, 2007 12:02 am

The School of Hard Knocks sometimes charges an outrageous tuition. But in any event, lesson learned, and that's what the school is all about.

This thread is about lessons learned...the hard way, sometimes. But it's those lessons that our clients pay us to avoid. My first lesson occurred prior to my getting in the business. It was during the time of bank failures, late '80's early '90's. I bought a bank stock, First Republic Bank of Texas (FRB), that had recently fallen on hard times. It was a huge bank in Texas; too big to fail - or so I thought. It had dropped down to $6/share and leveled-out around there. Rumors were swirling about a government bailout, so I bought a sizeable position. 

Well, the government did bail them out. Uncle Sam arranged for another bank to buy them and their distressed assets. Unfortunately for me, part of the Uncle Sam deal was that the existing shareholders of FRB would be wiped-out in the process.

Lesson learned: Stay away from distressed stock. 

Jul 9, 2007 4:06 am

Good points