The New Commonsense Guide to Your 401(k): Rebuilding Your Portfolio From The Bottom up

Chapter 36. What I Did

I'VE ALWAYS considered myself a big risk taker. When I was a kid, I jumped out of second-story windows and drove in stock-car races. In 1996, we bought a home in the country, even though we hadn't yet closed on our apartment in New York. Our family of four lived in a rented cabin with no heat for six weeks while I went on a book tour. Give me a risk and I'll take it. Some people call it thrill seeking.

When the stock market headed higher, higher, higher, in 1987, I had to get in on it, right? But I'd never bought stock before. What should I choose? I attended a press luncheon at Drexel Burnham Lambert (remember the junk-bond king?), and an analyst told us there was plenty of room for more growth in American Express. I bought it—right before the market crash in October 1987.

How many mistakes can we count there?

1. I invested for emotional reasons, afraid that I might lose out on getting rich, like everyone else.

2. I didn't know anything about specific companies, but I thought buying an individual stock was more daring, and more rewarding, than buying a mutual fund.

3. I bought on a "tip."

4. Perhaps worst of all, after the crash, I refused to sell American Express until it got back to what I paid for it. This is a timid saver mentality, not an investor mentality. As an investor, you should look at what the stock is worth and whether you believe it will get there. I didn't know how to do that.

By the late 1990s, I was writing a weekly online investment column for MSN Money, ...