Why I'M Down More Than 80%

Why I'm Down More Than 80%, and How to Avoid My Mistakes

By Adam J. Wiederman

April 30, 2010 | Comments (7)

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As any member of Alcoholics Anonymous knows, the first step to setting out on the proper path is admitting your weakness. In that spirit, I'm writing about my biggest mistake during the bear market. Here. Publicly. For the whole world to see.

After all, if legendary investor Peter Lynch of Fidelity Magellan fame could publicly admit to holding AIG and Fannie Mae at the end of 2008, what does an analyst like me have to lose?

I hope two things come of my story:

1. Someone, somewhere out there learns something from my mistakes.

2. Having studied psychological commitment and consistency in Dr. Robert Cialdini's classic work Influence: The Psychology of Persuasion, I hope that my public commitment to avoid repeating these mistakes prevents me from falling victim to them again.

Mea culpa

My greatest investing failure of the bear market has been my investment in Allied Irish Banks (NYSE: AIB). To date, I'm down 81% (not long ago, I was down more than 90%, but the stock has inched upward). And unfortunately, due to the Irish economy's sluggish recovery (not to mention, an unemployment rate of 12.7%), prospects for the bank don't look good.

However, as painful as this loss is, seeing how avoidable this was in hindsight hurts even more.

Perhaps the only comforting thought can be found in Warren Buffett's 2008 Berkshire Hathaway (NYSE: BRK-B) annual report. Buffett writes that he also suffered a significant loss by investing in Irish banks. Some have speculated that AIB was among them. If so, at least I was fooled alongside a much better investor. Unfortunately, his 2009 letter fails to mention whether he held this Irish bank, so we can't be sure whether he believes it's smart to hold, or whether selling is the smart choice.

Following the crowd

I first went wrong...