I Guess I’m No Warren Buffett

I enjoy following the stock market, particularly tech related firms like Apple, Google, Microsoft, Twitter, and Amazon.

I know that I own shares in most, if not all, of these companies through the mutual funds in my retirement plan, but that’s not quite the same as owning a stock outright and tracking its progress.

So a few months ago I decided to take some cash I had that was just sitting in the bank, and invest in just one of these tech stocks. Since I consider myself bullish on the long term prospects of all of the companies listed above, I figured I couldn’t go too wrong with any pick.

So I did some fundamental analysis of the stocks, and I came to the conclusion that the one that was currently most undervalued was Twitter. I started following its price for a few weeks, and I said that if the stock gets down to about the mid $20s per share, I would buy 100 shares. Mind you, when the stock first went public, its price jumped 72% on the first day, ending that day at around $45 per share. So I thought getting the stock at about $25 would be quite a bargain.

So on November 30 of last year the price hit $25.50 per share, and I went ahead and made my purchase. For the first few days, my hunch seemed to be correct, with the stock increasing about 2% in value within the first week (that works out to be more than a 100% annual growth rate!)

I started telling everyone that there was a new Warren Buffett in town, and that there wasn’t much to this stock market stuff.

Well less than two week later, the stock was down more than 10% compared to what I bought it for, and unfortunately, the trend has continued for the past four months, until today.

Twitter announced its financial and other performance results a few hours ago, and since they were not up to expectations, the stock is plunging in after-hours trading, down over 13% (as of this writing) in just the past couple of hours, to $15.36 per share.

So at this point, the stock is down just about 40% in the five months I have owned it; so much for being the next Warren Buffett.

So now my dilemma is whether I should sell what I own and cut my losses, or buy more stock at this much lower price. At this point, if I were to buy 100 shares at $15, and the price rebounds to $20, I could say that I broke even on the investment.

I don’t want to get caught in the sunk cost fallacy and hold on to the stock with the mindset that I bought it at $25, so I’ve got to hold on to until it comes back to $25. The key factor in my decision is what do I think is the future of Twitter.

Bottom line, I am still bullish on Twitter. I think it provides a unique and valuable service, plus it has over 300 million active users. That’s a lot of people to use as a foundation for growing a business.

So I’ll see what happens over the next couple of days, and then make a decision.

And if you’re looking to buy some Twitter stock, but don’t want to deal with brokers and all that messy stuff, I’ll gladly sell you mine at $30 per share. That’s nearly 60% off its all time high of about $74 per share, so it’s quite a bargain.

In the meantime, if you’re not too familiar with Twitter, let me suggest that you begin by following me at @jimborden. I’m sure you will love my daily tweets linking to stories from the Wall Street Journal.

*image from The Joy of Direct marketing

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Jim Borden

Accounting Prof. at Villanova; happily married for 30+ years; father of 3 outstanding young men; vegan; interests: fitness, creativity, education, blogging, social media.

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