Riding the stock rollercoaster

I own shares of Freddie Mac (FRE) stock as of the time of this writing. I paid $19.11 for them in March of 2008. (They had been at $59.52 just about a year earlier.) I thought they might eventually make their way back up to somewhere in the neighborhood of their previous level within the next year or so, so I decided to give it a shot. They were one of the stocks that I bought in “betting mode”, so I wasn’t too concerned.

I was very happy when they shot up to $32-something later that same month. I mentally congratulated myself. Maybe I had something here, if the stock was up that high already! “Should I sell now?” I wondered. But I reminded myself that that wasn’t the plan. The plan was to hold it a minimum of a year, maybe longer, so I’d better follow the plan. I started kicking myself when it dropped back down in to the mid-to-low twenties. Ugh. Maybe I should have sold while it was at $32!

When it got down to $17-something, I bought a little more, figuring that if I thought it was a good buy at $19, it was a better buy at $17. Of course, that was right before the start of a week of panicked selling for Freddie Mac & Fannie Mae stock. Suddenly those two stocks were a household name. People at the grocery store were talking about them, and not in a good way either. Was the world coming to an end? Or just the United States as we know it? What happens if my mortgage is held by Fannie Mae or Freddie Mac? Will they kick me out?

Then Freddie Mac dropped down into the $8 range, and I considered buying more. (See? Even better bargain.) But…well…I wasn’t sure. I could get a whole lot more shares for very little money, and that could be a great thing. But it wasn’t the plan. And I’d already reached the maximum amount I was willing to lose on that stock with my previous two buys. Plus I was seriously questioning my judgment at that point. What was I thinking buying that? I don’t know anything about stocks!

So I searched the (many!) articles about Freddie Mac. Most of the “new” stuff people were talking about seemed like rumors to me. I couldn’t find anything that had really fundamentally changed, except that people seemed to be panicking. Unfortunately, emotions and rumors can have a huge effect on the market and individual companies. (Along with greed.) I decided to just continue with my plan.

But I began checking the stock more frequently. (Did you know Google Finance has real time quotes now? You can obsessively watch the numbers tick tick tick with each passing second.) One day I noticed that Freddie Mac was at $3.79 mid-day. Three dollars! Oh my god. What on earth was I thinking! I’d actually bought MORE of this stuff, thinking $17 was a good deal? Maybe I should sell. I felt stupid. Clearly I had no business buying stock in the first place.

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I quickly calculated my potential losses. Bleah. Oh well, I thought. I didn’t need that money anyway. Besides, if I sell now I’ll only be guaranteed a loss. In for a dime, in for a dollar, I decided. Better just stick with the plan. A couple of minutes later it went up to $5-something, and I felt relieved. I quit obsessively checking it that day.

Today (7/23/08 — I schedule articles in advance) Freddie Mac is at $10.80. Who knows what it’ll be at the day this article comes out. I don’t really care, as long as it eventually comes back up and doesn’t cause the collapse of the country or anything in the meantime. Knowing your investment objectives and keeping them in mind can help prevent panicked or otherwise premature sales. I know that I’m glad I didn’t sell at $3.79. Maybe I should have sold at $32, but I don’t know, I think if your beliefs are sound and reasonable, then sticking to the plan is good as long as nothing has fundamentally changed. Who knows what the stock will be like in a year or two. Guess I’ll see what the results of my plan are then.