Guest Author - Guido Deboeck

No matter how experienced you are in investing, no matter how many years you have produced decent or no matter those excellent returns you achieved some years, the market will always be able to teach anyone of us a lesson.

Last week those of you who were invested in WCG, Wellcare Health Plans, a Medical Health Maintenance organization, that provides managed health care services to 2.26 million people through Government programs like Medicare and Medicaid, were reminded of just that.

Looking at a 3 year monthly chart of WCG you will see that WCG, launched in July 2004, started at $19.61 and climbed from there to $110.87 in September 2007, a 5.6 fold increase over approximately 3 years or 71 percent per year.

On October 24, 2007 WCG reached a high of $128.42 and closed that day at $122.22. The next day it dropped to $114.93 barely touching its 10 day moving average.

The implosion of WCG came on October 26, 2007. The stock, after been halted in the afternoon of the 25th, shot down to $27.50 and then closed the day at $42.67. This is a drop of more than 65% compare to the close on October 24th. Anyone who had say 1000 shares of WCG lost that day over $70,000! Ouch!

What happened? In the morning of the 25th some 200 FBI agents raided the headquaters of WCG in Tampa and confiscated documents and computers. WCG management r providing full collaboration and... started hiring a team of lawyers. The details will probably take months to surface. Meanwhile investors in WCG could only guess the size of the iceberg underwater.

The day after the stock went from $42. 67 down to $31.36, the stock dropped another 26%.

Anyone who saw the 1994 movie by Robert Zemeckis, may recall that Forrest Gump said: “s**t happens”!

The important thing to remember is that investing in equities remains a risky business. Even it this happens to you just once in a lifetime, it is an experience that you will never forget.

Another important lesson to learn from it is that stop-loss orders don’t provide the protection you think they provide: after the stock was halted on the 25th WCG opened on the 26th way below where it had closed on the 25th, hence even a trailing stop-loss order of say 5 or 10 percent would do no good.

Finally, the WCG collapse of last week reminds us all that while investing in just one stock may produce the best portfolio results, there is always the risk that that one stock drops like a brick, with no possibility of catching it on the way down, for a reason that may remain unknown for a long time.

If you did not hold WCG last week consider yourself lucky; if you did and you had the good sense of getting out, taking your losses, don't consider yourself unlucky, because you learned a lessons that will never be forgotten.