Know What You Own

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Have we figured out yet that we need to know what we own?

When the book is written about investor mistakes of the 1990s, mistakes that wiped people out by the carload when the market turned bad in 2000, the two most glaring errors were two sides of the same ignorant coin: buying only what you knew without homework about whether it was real, and buying what you didn't know but was hot.

The first mistake, I used to call "the voting problem." "I really liked Webvan's delivery of food, so I bought the stock." "I had a good experience with eToys at Christmas, so I took some down." "The Amazon site is so great, I have to buy as much as I can." That was all part of the school of thought that said, "Buy and hold," and, "Don't worry, it has to come back because stocks always outperform," without recognizing that companies' fundamentals can deteriorate beyond recognition. And these are, in the end, just pieces of paper.

I don't see much of that anymore, except with Google(GOOG), and I am just so glad that Google has earnings so it isn't that big an issue. It will be tougher to sink that company than people realize.

But the second issue, knowing what you own, is vexing people again. How many of the people who own Marvell(MRVL) or Broadcom(BRCM) or Qualcomm(QCOM) really know what they own? I believe that very few do. How many people understand what Syneron(ELOS) does, or Intralase(ILSE)? Or Inter-Tel(INTL)? I don't think many do, unfortunately.

How do you immunize yourself to this ignorance? One way is to be sure you can explain the product to someone else. Part of the digital revolution that was so damaging to people's wallets was the ease with which they could buy a stock without having to explain why they wanted it to a human. When I was a broker and someone wanted to buy something obscure, I always asked them to explain it to me so I could tell others about it. Often, and this was just at the beginning of the big tech revolution, they couldn't.