How to Avoid Investment “DOGS”

In August 1999 near the peak of the stock market tech bubble, a long-time, normally conservative client asked me for a “low priced” stock pick in the then red-hot technology sector. I told him about several stocks that fit the bill. He settled on Corel Corporation, a Canadian based Software Company that was working on porting their Perfect Office Suite to the Linux operating system. Almost immediately upon his buying 1,000 shares at $4.75, Corel began climbing nearly doubling within a few weeks before pulling back. In November 1999, Corel stock soared higher. I called my client and recommended he sell his shares at $28. He sold, booking a 560% profit in just 3 months. The day after he sold, he called me back and asked excitedly “Where is Corel trading now?” “Forty-three dollars a share” I replied somewhat uncomfortably. “Buy it back!” my client exclaimed enthusiastically. Fortunately, I was able to dissuade him. Corel peaked that day at $44 and within months crashed back to earth as the stock market tech bubble burst. The chart below illustrates the gory details. Investors who bought and held Corel stock during its inexplicable moon shot of late 1999 and subsequent crash ended up owning a stock market DOG.

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