I’m a beginner in investing. I followed Rule Breaker’s advice since 2020 and put a big amount of money on LMND, ZILLOW, TDOC, and now I’m at 70-80% loss.
What should I do with these stocks now? Esp. Fool.com recently put some of them in the penalty box. What does penalty box even mean? Should I keep buying to balance out the loss?
Those companies still seem to have long-term potential and I’m okay to keep them in the next few years. Just don’t know if I should put more money into them or should I ignore and focus on other stocks.
thanks so much for any advice!


A couple of things.

  1. Following someone’s investment advice can be difficult - especially if you don’t understand the advice being given.

  2. The RB and other high growth / momentum strategies can be difficult for new investors as these companies can be hard to value.

Suggestion (not advice!) - stick with index funds, and then when you understand how to value a business pick ones that are much easier.




In addition to the losses on your stock purchases, you need to add the money you wasted --err, spent-- on a subscription to RB. Instead, you should have bought a used copy of Ben Graham’s intro to value investing, The Intelligent Investor. Or if a more “growthy” style of investing appeals to you more, then any of Peter Lynch’s books.

As for what to do about the stocks you’ve already bought, DO NOT ADD MORE MONEY. Instead, keep them as reminders that you failed to do your homework before you bought them. One of these days --maybe-- they’ll recover. Or maybe they won’t. Who knows? Meanwhile, just regard them as very expensive warnings not to jump into things you don’t understand.

In addition to doing some basic reading, I’d suggest you find an investing buddy. I’m guessing from the photo you included in your brief bio that you’re female, which puts you into immediate conflict with the reckless, male-oriented approach to investing that the Motley Fool prefers. Seriously, there are deep and profound differences in how the two sexes view and deal with ‘risk’. This isn’t to say either approach is better or that there aren’t reckless women, for whom that idiot, Cathy Woods, is the poster child. But if you don’t hang glide, rock climb, etc. and aren’t an adrenaline junkie, you shouldn’t be trying to follow TMF’s model of investing, which isn’t ‘investing’ in any meaningful sense of that term. What they advocate is ‘speculation’, nothing more.

Right now, you’re suffering financial damage and emotional damage, and you need a win to clear your head (and heart). So, do this. Take advantage of Schwab Starter Kit offer. “Open and fund your account and get $101 from Schwab to split equally across the top five stocks in the S&P 500®, plus education and tools to help you take the next step.”

Now here’s the good part. The funding requirement on your part is a mere $50. Once you’ve done that, they give you $101 worth of stocks. ShaZamm! You’ve tripled your money. Furthermore, once the stocks are in your account, they can be sold if they don’t do well. So you’re trading on their nickel. But you still need someone to talk to. So talk a girl friend into opening an account as well, and then the two of you learn together how to make sense of the craziness of markets.

Lastly, and again, there really are no right ways to do any of this investing/trading stuff. There are only ways that interest you enough that you’re willing to do the work --and accept the risks-- they require. That means you gotta do some exploring to find a niche that suits your means, needs, goals, and personality.

Caminate, no hay camino. Se hace camino al andar. [roughly, “There are no roads but by walking.”]





Three ways to think about ditching big loser positions.

Sit down and, with an honest-to-goodness pen and paper, write down why you originally bought them.
The facts available, the reasoning, the expectation.
If that reasoning still holds, keep holding them. If not, don’t.

Imagine you got up this morning to find that the positions had been sold in your account, and you now have the cash.
(ignore tax consequences for this scenario)
Would you buy them at today’s prices? i.e., would they be the best possible investment use of that cash that you can think of?
If not, sell.

(outsmarting your monkey brain–assumes that selling is actually the right thing to do)
Sell half now. Wait a short while, sell the rest.
If the price goes up in between, you’ll feel like a genius for having waited before selling the second half.
If the price goes down in between, you’ll feel like a genius for having at least sold some right away.

The main case for holding: if the positions are small, and you are youngish and still saving and accumulating investments,
there is a case for holding things and giving things time to work out, provided that still seems possible.
Even if you aren’t that sure about the outcome.
Many years later, either they’ll have worked out or they’ll in any case be a trivial part of your capital.
But you have to at least believe in a decent chance of their coming good, and avoided the common problem of losing money because you had a good pick but were too impatient.
My personal rule: if the current price is under about 12 times what you think they can manage as “pretty darned sure” EPS averaged 5-10 years from now, you’ll probably do fine.
The thinking is that, whether they’re profitable or not, eventually the market will expect it.
The waiting time isn’t infinite, and pretty much nothing is predictable more than a decade out.
It’s generally best to assume that every firm will be trading at a multiple in the teens of current honest profits when you go to sell, assuming it’s a few years from now.



Three ways to think about ditching big loser positions.

Great post Mungo.

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My personal rule: if the current price is under about 12 times what you think they can manage as “pretty darned sure” EPS averaged 5-10 years from now, you’ll probably do fine.

Jim, if you’re ever interested in outlining the techniques & data sources you find helpful in building a 5-10yr forward EPS estimate for a company, I (and others I suspect) would be fascinated to read it.

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