Twice burned

I got burned on stock in Molycorp, a rareearth materials company. That kind of thing happens. The dumb part was that I did it twice!

I made a bad move, got out, berated myself for bailing out, then saw the stock price go way lower. So I bought again, watched it drop more, got out, and resisted the temptation to try it again — I won’t let a stock fool me three times.

Unless it’s a large, stable company with a long, profitable track record, my mantra now is, “Burn me once, you’re done.” — R.L., Cincinnati

THE FOOL RESPONDS >> Molycorp was once flying high, but then China increased the world’s supply of the rare elements used for products such as batteries, camera lenses, catalytic converters, hard drives and MRI machines. Prices dropped, and Molycorp ended up with years of massive losses, eventually filing for bankruptcy protection. It emerged as a new company later, but only after shareholders were wiped out. The lesson here is to not try to catch a falling knife. Low and lower prices can be appealing, but they tend to reflect a company in trouble. Unless you have strong

reason to believe the company will ultimately recover and prosper, aim to make money elsewhere. Selling at a loss is better than selling at a greater loss later. Companies that file for bankruptcy protection will often end up burning their shareholders.