The Ivanhoe Incident
	by: Chris Mallon One of my favorite authors, Bill Bonner, is fond of saying that foolish people rarely get what they want, but almost always get what they deserve.  His usual frame of reference for that line involves people living in a Democracy, but from personal experience I can honestly say that statement is also true when it comes to investing.  Let me illustrate with a little story. I don't know if you've ever heard of Thom Calandra.  I hadn't until last year about this time, when I started reading his column on CBS Marketwatch.  Calandra was the founder of Marketwatch, and was a well respected, journalist.  His 20-year career saw him travel across the globe.  He was the markets editor for Bloomberg News, after which he became money editor for USA Today. In 1996, Calandra moved back to San Francisco and founded Data Broadcasting Corp., which later merged with Marketwatch.com, finally settling into the current incarnation.  Early on, Thom had a keen sense of how important the Internet would be for disseminating news, and was a pioneer of web journalism.  As editor-in-chief of Martketwatch, Calandra earned the respect of his peers, and was frequently tapped for radio and television appearances. I tell you this for good reason.  Today's article isn't just about my foolishness as an investor, which is a lesson in itself.  It's also a story about a man's fall from grace.  As history has proven countless times, greed makes people do things they normally wouldn't, and as you will see, it rarely turns out well. Early in 2003, I began watching with interest the rising commodities markets, particularly precious metals.  Calandra's StockWatch column focused on precious metals, energy, and other commodities, and was the perfect resource for keeping abreast of these markets.  It was well researched, thorough, and fun to read.  I truly miss it. Now, I pride myself on my independence of thought, and I "never" purchase investments based on other people's recommendations.  Well, almost never.  Twice in my life I've bought stocks based on hype.  The first time was years ago, during the bubble, when I bought a small block of shares in a little-known telecom.  Over the course of a year and a half I lost about 85% of my investment in the company.  Not very smart, but I was still young then, and still breathing the fumes of the New Era.  The second time I call the "Ivanhoe Incident". You see, Calandra not only wrote StockWatch, but also offered a pay newsletter service, in which he had recommended Ivanhoe Energy when it was trading under a buck.  This turned out to be a smart investment for his pay subscribers.  Once the stock reached the three dollar range, it started to appear as a recommendation in the free column I read.  Not such a great deal for his free readers. Can you see where this is heading? I read the arguments in favor of the stock, and knew it was ready to sign on for a project in China that could be a huge money maker. Sure, the stock was trading at 70 times sales and had no earnings to speak of. And it was true the stock was so overvalued I would never touch it under normal circumstances.  But the stock was on the move, and was recommended by an elite financial columnist!  And Calandra had disclosed his beneficial relationship with company management, so surely he was on the up and up. No one can say for sure if Calandra was taking kickbacks from Ivanhoe, in return for the good press.  That's for the feds to determine, but it doesn't look good for him.  In all fairness, he was (I believe) honest about the relationship, disclosing when the company paid for him to fly around the world.  The disclosure may be enough to absolve him of wrong-doing, but it obviously wasn't enough to throw up red flags in front of investors, including me. By the time I made the decision to take the plunge, the stock had reached $4.75 per share. I eventually bought in at $5.25. Imagine my satisfaction when the stock jumped 32% to $6.95 just two days later. I lost all rationality with this stock, and found myself rooting it higher, just like so many tech investors in the late nineties. What I was blind to then, but see all too clearly now, was that I had bought in during the big blow-off, when the smart money was bailing out, including principals of the company, and possibly a certain columnist. Shortly after peaking, the stock began freefalling, dropping 50% in just a couple weeks. At least I was smart enough to realize my foolishness, and managed to get out with only a 32% loss. As of right now, the stock is trading at $2.22, down 67% from its high, Calandra is no longer writing his column, and he's facing possible charges by the SEC. Here's a chart of Ivanhoe, with the timeline laid out.  The approximate timeframes are rough, and could be off a bit.  The story remains valid, though, and you'll see how the stock didn't take off until he started mentioning it in the free column. It could be a simple case of coincidence, though I highly doubt it.  The SEC is looking into Calandra's trading activity, and he could be in trouble.  Here is a man who spent years building a reputation as a journalist and financial commentator, only to have it all come crashing down based on an assumption of wrongdoing.  It's interesting how the world works - just ask Martha Stewart.  You can spend your entire life doing great things, but get caught with your hand in the cookie jar just once, and you're a cookie thief for life.   The lesson here is to always be aware of how important, and how fragile, your reputation is.  You must take care not to tarnish it, because if you screw up, it's damn near impossible to repair a reputation without a lot of hard work. In no way do I blame Thom Calandra for my foolishness, but I do hope you'll heed this article's warnings.  For me, the "Ivanhoe Incident" is proof of what happens when you lose focus of your investment discipline.  I'm a value investor who knows better than to trust recommendations without research.  The evidence was staring me right in the face, and I chose to ignore years of accumulated knowledge, fundamental valuation, and common sense, in the hopes of making a quick buck.  As has always been the case when I stray from my discipline, I failed miserably.  Sometimes these things have to happen for me to refocus and appreciate what's gotten me here. There are a couple morals to this story.  First, just because a respected columnist recommends an investment doesn't make it a good one. Second, and most importantly, if an investment is outside your realm of knowledge, or doesn't fit your investment criteria, you should maintain discipline and pass on it, regardless of what the stock price has done. I failed to heed my own advice, and I paid dearly for it. I'm just lucky I didn't get more of what I deserved. Chris Mallon is the founder of www.dynamicinvestors.net and is a member of the Dynamic Investors partnership.  As of this writing, neither Dynamic Investors nor Chris Mallon own any of the stocks mentioned in this article.