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When Fools Were fools
When Fool Employees Erred

August 14, 2000

Oh yes, Fools. We do have enough financial bungles to bring you yet another exciting episode of "When Fools Were fools." Remember this special feature? It's a series where brave Fool employees admit their most unFoolish financial moves. We may work at an incredibly Foolish place, but we're still human. Hopefully, reading about these not-so-successful investments will help you avoid making the same mistakes. Be sure to check out the "Fix It" line following each section to find out how you can get yourself out of or avoid the same situation.

Mom Knows Best About Debt
By Susan Basalla

When I was a starving graduate student, I used to put all my big purchases on my credit card, figuring I'd pay them off whenever I got a little extra windfall from my freelance writing. Of course, whenever I got that extra paycheck, I'd reward myself with something much more fun than paying off credit card debt. After a few months, I was scared to open my credit card statement, so I just didn't. Finally, I couldn't take the guilt and I faced how much I owed. Yikes! I bit the bullet and took the time-honored approach to getting out of debt: I asked my mom for a small loan. I was sure I could pay off the balance myself eventually. Instead, my mom insisted on paying off the entire balance (not because she wanted to, that's for sure), because she knew what I didn't: Tiny credit card payments are no match for a whopping interest rate. I learned my lesson. Thanks, Mom.

Fix It: Don't pay by the credit card company's rules. Find out why in Step 3 of the Fool's Debt Area.

The Downside of Collegiate Frolicking
By Fred Stutzman

Senior year of college. Ahh, what a time. Ahh, what a time to not have a job. You see, I spent the second half of senior year unemployed and, more or less, living off the plastic. Now, I don't regret the times, the wild fun... I could digress. I do regret getting into debt. Once out of college and working at such a Foolish company, I made up my mind to get out of the red. The way I am doing this is by keeping close track of my expenses and budgeting. I cut up the cards (well, except for one), and put myself on a fixed cash budget. At the end of the month, I pay all the critical bills, then divide up the rest to pay off the creditors. Well, I've been sticking to it pretty well. Some months there are unforeseen expenses that force me to deviate from my plans, but the debt should be gone soon enough.

Fix It: Set up a budget using the Fool's budget calculator.

Bad Credit Turnaround
By Angelique Keenley

After getting myself into serious financial trouble in my early 20s, I started cleaning up my debt and decided that I needed to establish new credit. I thought it would be a good idea to get a couple of credit cards, and start using them and then paying them off. I had a couple of these for about three years. The problem is, these were credit cards that are granted to people with bad credit. The annual fees were high and so were the interest rates. I thought that as long as I paid them off every month, the annual fees were worth paying to build my credit again. However, when I went to buy my new house this past spring, I found out that even having these credit cards was a negative factor in my credit score, despite my timely payments and outstanding history with these companies. I have now paid off those credit cards and closed the accounts and have only one credit card -- one that is given to people with a "normal" credit rating. Beware of companies that promise to restore your credit -- they may not do what they say. The best way to "restore" your credit is to pay off your debt.

Fix It: You'll find some helpful tips in our 9 Ways to Pay It Back article.

Short-Term Trading Claims Victim
By Selena Maranjian

Back in my very early investing days, I invested in Micron Technology (NYSE: MU) and lost money on it -- twice! I bought it in September of 1995 when it was trading around $80 per share and sold it, annoyed, in November at around $60 per share. A 25% loss -- amounting to roughly $1,000 for me. Ouch. Apparently not having learned any lessons, I bought it just a week or so later, in the high $50s. (I'm looking at my old records now for the first time in many years, and I'm scratching my head in amazement.) How long did I hang on this second time? Just a month. I sold in December of 1995, when the stock had dropped another 25%. Again, I lost roughly $1,000. What were my mistakes? Well, for starters I knew very little about the semiconductor industry in general and Micron in particular. I'd merely read some glowing articles about them. I also hadn't learned too much about the value of buying and holding. Not knowing what I really owned, not being used to volatility in volatile stocks, I was impatiently making rash decisions. If I'd just hung on to my initial September Micron investment, and still owned it today, it would have doubled. A 100% gain in 5 years isn't too shabby. That's roughly 15% per year -- certainly better than two consecutive 25% losses.

Fix It: Be a long-term buy-and-hold investor.

Learning the Hard Way
By Carleen Murchison

How foolish was I? Let me count the ways. Like most, I got my first credit card in college. When I moved into my first apartment at the age of 19, I had it completely furnished on the first day thanks to my credit cards. By 21, while I had perfect credit, my debt-to-income ratio was way out of whack and the minimum payments weren't making a dent. Lesson learned? I now use an American Express card for most purchases and limit my revolving card limit to $500. That same year, I bought a used car without looking up the Blue Book value or negotiating the price. Needless to say, a year later the car was continually breaking down and I owed more than it was worth. Lesson learned? My next car was a Saturn, no haggling. I have made many, many more expensive mistakes over the years. I'm just glad to say that, while they may hurt, I always learn from my mistakes.

Fix It: Join the Living Below Your Means discussion board for tips on keeping costs down. And, visit the Buying a Car area to get a good deal on your new wheels.

Day-Trading Leads to Losses
By Sawt Merchant

Even young Fools were once fools. My father parted with $2000 and allowed me to invest -- or day trade -- it. He said "This money will be gone in 6 months." I thought to myself "Whatever, dude, what do you know? You just have years and years of investing experience under your belt, but I am a fresh college kid with a connection to a day-trader's chat room!" So, being the fool that I was, I took a "can't miss" recommendation from an Internet chat room groupie and purchased a bunch of Finet Holdings (Nasdaq: FNCM), now called Finet.com. No annual report, no valuation, no research, just a stock tip from a stranger. As you may be able to guess, the stock rode the proverbial roller coaster as it climbed up, but then promptly plummeted to near death. I was left with $500 and a size-11 foot in my mouth.

Fix It: Stay away from penny stocks and, for goodness sake, don't day trade.

Beware of Phone Solicitations
By Steve Page

I was in a deep, deep slumber the morning after a night full of celebration. The phone cut through my sleep at about the height of REM sleep, right when I was in no frame of mind to make a decision. All of a sudden, this voice exploded in my head -- "Since you are such a great customer, we are going to give you two free airline tickets to the destination of your choice! All you have to do is sign up as a trial member of our service!! No Risk!!" Hey, why not, I thought -- this is my credit card company, not some scam operation. I can trust them to do no harm. I thought I would outsmart them -- take the tickets, not sign up for the full whatever deal they were asking about, and live happily ever after.

Well, after getting the package of information (a ton of fine print), I realized this was not my warm-and-friendly credit card company offering me this grand opportunity. It was some other company that had purchased a mailing list. However, I was definitely entitled to free tickets, as long as I paid full price for a hotel room that was part of their network. Not only that, if I didn't cancel my trial membership within 60 days of the initial call, I was going to get charged $70 automatically as part of their membership fee. Silence as consent, awesome I was able to fight my way through a maze of customer service reps and cancel my membership in time, but I fear for those who don't have the time and patience to cut through the bureaucracy.

Fix It: Simply say "No thank you" when you receive an offer over the phone. If it sounds to good to be true, it probably is. Also, check with your credit card company. You can ask them not to include your name on the mailing lists they sell.

Want to read more financial foul-ups? Check out our previous editions of When Fools Were fools: