Boom and Bust

The Saratogian (Saratoga, NY) - - BUSINESS -

One of my smartest in­vest­ments was in Amer­ica On­line’s stock. I bought 500 shares at $100 each in 1998, and within less than a year, it had soared. I thought things would only get bet­ter, and watched in amaze­ment as the stock fell. I then did what you’re not sup­posed to do — I pan­icked and sold. Still, I reaped a big profit in just 6 months. If I’d sold ear­lier, I’d have net­ted much more. (Isn’t hind­sight won­der­ful?) The episode taught me that you need to grit your teeth and hold through volatil­ity. It also taught me that you can’t time the mar­ket. — J.S., Aus­tralia

The Fool Re­sponds: Amer­ica On­line made many peo­ple a lot of money dur­ing the dot-com boom, but not all great busi­nesses stay great.

Amer­ica On­line was the U.S.’s big­gest in­ter­net provider in 2000, val­ued at $125 bil­lion, but that was be­fore the in­ter­net bub­ble burst. It ended up join­ing with Time Warner in what would later be seen as one of the big­gest merger fail­ures ever. In 2015, AOL was ac­quired by Ver­i­zon Com­mu­ni­ca­tions for about $4.4 bil­lion.

It’s smart to hang on to stocks that you be­lieve in dur­ing volatile pe­ri­ods — but you need to know why a stock is fall­ing, and sell if it ever be­comes wildly over­val­ued. Many stocks plunged dur­ing the dot-com crash sim­ply be­cause they had been bid up too high in a spec­u­la­tive frenzy.

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