Up and Down Like a Rocket

I know this goes back awhile, but during the dot-com boom, I bought shares of JDS Uniphase. It went up like a rocket. I was cruising! But what did I know? It soon plunged 50 percent. Whoopee! A hot buying opportunity for "smart investors," I thought. I bought more. Then it plunged another 20 percent, then another … all the way down to oblivion. Lessons? Well, maybe: (1) In the style of Warren Buffett, never buy stock in a company whose business you don't understand. Frankly, I never did understand what the company did. Neither did most of the other investors. (2) If a stock is dropping like a rock, thoroughly understand why before buying more. In JDSU's case, it was because the market for its products sharply declined. (3) If a stock has a P/E ratio of, say, 200, don't touch it with a 10-foot pole unless you've done a great deal of disciplined, methodical research.

— Scott, California

The Fool Responds: You learned some excellent lessons. Today JDS Uniphase rates only two out of five stars in our free stock-rating service at caps.fool.com.

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