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My Biggest Blunder

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July 30, 2007 – Comments (15)

 

Let’s face it, if we invest in stocks long enough we’re all going to make mistakes – some bigger than others, and I’ve had more than a few “Doh!” moments along the way. 

In my Foolish interview I mentioned buying Yahoo at pretty much the height of the dot-com bubble, even though for a great while I had steered clear of all things tech – partly because I didn’t understand the industry well and partly because I thought the valuations were incredibly high.  I ended up, like a lot of investors, succumbing to the frenzy after watching stocks like this go up, and up, and up, and missing out.  I paid nearly $114 per stub for Yahoo in late August of 2000.  Less than two months later I sold for about $60 per share.  Ouch!  Losing 50% is painful enough – doubly painful is the fact that I new better. 

But this wasn’t my biggest blunder, not by a long shot.  It’s not even my biggest % drop on a single stock. 

That honor goes to Northfield Labs.  I purchased this stock for $10.65 per share this past August.  When I made the investment I knew it was a binary proposition.  Either the clinical trials would go well, or they wouldn’t.  Believing I knew the risks, I took a rather small position.  Well, the trials didn’t turn out so well and the stock, which I still own, is trading for $1.28 today – a near 90% haircut.  While this stock is my biggest loser, I don’t really even consider it an investing mistake.  I knew the risks when I took them – sometimes we make a good decision, for good reasons, and things just don’t turn out. 

Actually my biggest mistake ever wasn’t a stock I lost much money on at all.  My biggest investing mistake ever is Apple. 

Back when I was a relatively new Fool and long before I had a TMF handle (I’d been around about 4 months at the time), I wrote this post.

The day I wrote that post, Apple was trading for about $17.06 per share.  It’s at $141.34 today.  A nice 821% gain.  But wait, it gets worse.  There’s been a split since – so the shares are really up over 1650%.  Of course you’re probably guessing by now that I didn’t buy shares back then, and you’d be right.  While this would have been (and was) a pretty big blunder, it’s still not my biggest. 

You see, I kept that post in mind, and kept Apple on my radar, and ended up buying shares a full two years later and at a lower price to boot.  I took a bite of Apple in November of 2002, scooping up a few shares at $15.41 each.  Good things come to those who wait, right?  Those shares have enjoyed a nice 1834% gain.  That’s about 86% per year for nearly 5 years!

Problem is, I sold them. 

Actually, it embarrasses me a little to say that I held those shares for only about 2 months, selling them in January of 2003 for $14.16 each, or about 8% less than I paid for them.  While I’ve had a few investing successes along the way, none of my successes come even remotely close to the one I let get away. 

It’s one thing to decide not to invest in a company and watch the stock price climb significantly.  Sure, it’s not the best feeling in the world, but one can’t invest in every stock that suits one’s fancy.  That happens all the time, and really doesn’t bother me all that much.  It’s quite another to actually have that bird in the hand, original investing thesis still in tact, and sell after just a quick holding period out of a sense of frustration because the stock price isn’t doing what one thinks it should. 

That’s what happened to me.  Don’t let it happen to you. 

That’s why a lot of folks here at the Fool are always preaching to sell rarely, if ever.  It’s also while a lot of Fools say to constantly invest new money so you’ll have a source of cash with which to pursue your new investing ideas (as opposed to what I did which was to sell something in order to raise the cash to buy something else). 

Had I only listened I could say that my biggest investing blunder was my purchase of Yahoo.  I wish!  Because that’s a trivial, tiny little error hardly even worth mentioning when one compares it to the monumental mistake I made when I sold Apple.  

Fool on! 

Russell (a.k.a. TMFEldrehad)

15 Comments – Post Your Own

#1) On July 30, 2007 at 3:48 PM, TMFSelzhanik (99.54) wrote:

Ugh.  You reminded me of my experience with Apple.  I'm also embarrassed to say that I also bought and held for only a couple of months, selling for a gain that just barely covered the transaction costs.  The price was around $40 then, and a co-worker I discussed investments with told me repeatedly to hold.

I just felt that I couldn't get my arms around the company enough to explain the stock price movement I had seen.  Apple investors simply seemed nuts to me when I looked at what they were doing.  One of the lessons learned from that was to not pay so much attention to why Mr. Market does the things he does.

It was nice to read about your experience.  Thanks, Russell.

Best,
Paul

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#2) On July 30, 2007 at 4:35 PM, tuffsledding (95.21) wrote:

Thanks for tose words of wisdom (or should I say Foolishness?). I have made many, perhaps less dramatic, but cummulatively equally damaging errors. I keep track of all stocks I've sold and I have to confess that had I kept them, I would have, on average done quite well. For example, the stocks I sold in 2003 are up 85% since then, over 20% annual growth. Of course, most of the proceeds went back into the market and I don't have an exact accounting of what the return is on those specific $$, but I'm pretty sure it is less. My dumb sales included RIMM @ $17.5 (now trading  @ 220,  AMT @$6.18, now tradidng @ 42.20, DECK @$ 4.20, now @ 107 and, yes, AMZN @ 22.67, now @ 82.70! 

I am sure most other Fools have a few similar stories to share.

So, thanks for emphasizing this important aspect of investing.

Perhaps, "Seller beware!" should be recognized as important as "Buyer beware!" 

Keep Fooling on, Russel and keep the faith. I agree with your view of the housing mess...

Cheers,

Martin 

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#3) On July 30, 2007 at 10:26 PM, MakeItSeven (32.28) wrote:

My story of "The big fish that got away" is LCAV.  I bought it in 2003 at around $2.50 when laser eye surgery was not popular yet.  I was sure that it would be so I wanted to keep that stock for long term.  However, an analyst shook my confidence by claiming that Chinese companies would compete and erode the profit to nothing so I sold it for some decent profit shortly afterwards at $3.  It continued to move to $50 3 years later.

However, the result of a strategy is the sum of all stocks bought/sold using that strategy, not an extrapolation using a single stock. 

I'm sure for every person who jumped off the AAPL train too soon, there is also another person who bought and held a big moat stock such as WMT in the last 5 years and got nowhere for their investment.

Anyway, my portfolio went up around 5 times since 2003, most of the profit is already after-tax since I do short-term tradings, so I don't shed any tears over the fact that I missed LCAV.  I'm just telling myself not to trust anybody else any more, analyst or not.

Personally, I think the stock market presents a risk besides the reward, therefore, it might not be a good thing to provide an anecdote which creates an illusion that holding on to stocks is always more profitable in the end.  I never advise people to hold on to anything unless they know exactly what they are holding on to.  My doctor and some friends asked me what to do with their SUNW shares bought at the peak.  My answer is to roll my eyes since that's all I can say.

Fool on.

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#4) On July 30, 2007 at 10:52 PM, m1chaelb (70.21) wrote:

Russell

You have heart and character to come out and admit mistakes, we have all made them just have to keep on going and don't be too hard on yourself.From your caps scores and timely picks I am sure you have made alot less errors than I have! Thanks for sharing your experiences.Mike

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#5) On July 30, 2007 at 11:06 PM, MakeItSeven (32.28) wrote:

My story of "The big fish that got away" is LCAV.  I bought it in 2003 at around $2.50 when laser eye surgery was not popular yet.  I was sure that it would be so I wanted to keep that stock for long term.  However, an analyst shook my confidence by claiming that Chinese companies would compete and erode the profit to nothing so I sold it for some decent profit shortly afterwards at $3.  It continued to move to $50 3 years later.

However, the result of a strategy is the sum of all stocks bought/sold using that strategy, not an extrapolation using a single stock. 

I'm sure for every person who jumped off the AAPL train too soon, there is also another person who bought and held a big moat stock such as WMT in the last 5 years and got nowhere for their investment.

Anyway, my portfolio went up around 5 times since 2003, most of the profit is already after-tax since I do short-term tradings, so I don't shed any tears over the fact that I missed LCAV.  I'm just telling myself not to trust anybody else any more, analyst or not.

Personally, I think the stock market presents a risk besides the reward, therefore, it might not be a good thing to provide an anecdote which creates an illusion that holding on to stocks is always more profitable in the end.  I never advise people to hold on to anything unless they know exactly what they are holding on to.  My doctor and some friends asked me what to do with their SUNW shares bought at the peak.  My answer is to roll my eyes since that's all I can say.

Fool on.

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#6) On July 30, 2007 at 11:25 PM, infoLust (27.61) wrote:

I am a neophyte in investing.  In my younger days, oh say about 5 years ago, I was all about quantitative algorithmic trading strategies, in and out of thousands of companies daily. Using historical data for the last tens years subtracting the lowest transaction fees reasonably available via interactive brokers, I had a system that would systematically churn out 120% return.  For me to stick it out and hold was a very difficult but the only thing practical for me because I don't have enough money to quit my day job ;-).

I would like to point out that this site has helped me greatly in honing my investment approach and honestly believe with my level of capital could probably achieve 50% return for the first few years easily. I used to use yahoo to track my portfolios but it's a lot more fun here and you get ranked as a plus.

I'm learning to stick it out with companies and getting much better at picking them.  The truth is that one multi-bagger returning 1600% makes up for 16 companies that shot to zero and all it takes is patience.

Party on fools. 

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#7) On July 30, 2007 at 11:34 PM, Allstar13913 (99.82) wrote:

My biggest mistake was Google.  I know, I know everyone says they were going to invest in google. 

But I actually had the dutch auction price in with my broker.  I offered to buy my shares at $89.  I eventually got scared by the SEC inquirey due to the Playboy Article.  I wondered if a company that made such a freshman error deserved by money.

I should have stuck with my original investing thesis.  If that was the case, I would be a really rich man these days.

~Mike (Allstar13913)

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#8) On July 30, 2007 at 11:35 PM, infoLust (27.61) wrote:

Wow, I read your apple post and that's really something.  Your facts were correct and your reasoning correct.

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#9) On July 31, 2007 at 1:41 AM, MakeItSeven (32.28) wrote:

Infolust,

How often do you find stocks which move up 1600% :).  Anyway, applying the buy&hold strategy to all the stocks in the Nasdaq universe will give you 57% profit in 10 years, not counting all the stocks which have gone bankrupted and delisted during that time.  That's nowhere near the illusion of profitability caused by this story.

But, sure, everybody could have seen in 2000 that AAPL was going to come out with iPod and iPhone and all that neat stuff in the future, not just a computer line threatened by Intel and therefore held on to the stock despite any loss and gain along the way, right ?

My investment philosophy is that I cannot see into the future, not too far in the future anyway.   I live in Silicon Valley and talk to enough people who were hurt by the stock market and so I think it is irresponsible to tempt their greed and harm them.

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#10) On July 31, 2007 at 12:53 PM, dcrednek (79.44) wrote:

Thanks for sharing your thoughts on the subject of blunders.  Everyone loves to crow to their friends about the wins, but the blunders are where the real lessons (and future payoffs) come from.  Reading between the lines, I think that the biggest lesson to be gleaned from your experiences is the difference between trading and investing.

Traders make money on momentum; and profitable trading depends more on simple supply and demand for an issue.  Investing is an exercise in evaluating and buying into the future earnings potential of a company, at a time when the future payoff (i.e. increased earnings) is greater than that of alternative investments (like Treasury issues).  Comingling the two produces far more losses than wins over the long haul. 

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#11) On July 31, 2007 at 6:48 PM, Buckaneer (< 20) wrote:

Your message is very humbling, yet inspirational. Having taken many losses, and seen MANY trains leave the station, it was nice to read about some similar experiences. Now I just need to let some good stocks run.

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#12) On August 01, 2007 at 1:23 AM, infoLust (27.61) wrote:

If you're good you can zero in on those picks. If you're a flip flopper, you'll be able to dump them in light of new information. The crucial thing is that one must exercise patience.  I think our friend Eldrehad got impatient and that's what bother's him the most.  But also since he was new, who could trust themselves so much?

Look at my portfolio, I'm stickin it out with URZ.  On a global point of view the fundementals are there.  Aint gonna happen overnight, but i'd rather find out the hard way.

 

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#13) On August 03, 2007 at 3:06 AM, jester112358 (28.81) wrote:

Your story indicates how following a stock too closely can be a problem.  We all regret things in hindsight.  In my early investing days I bought stocks like Apple and Harley Davidson since I liked their products, not investigating financial issues and paying little attention to their monthly performance.  I also knew they had great management which treated employees very fairly.  I suspect this is why companies like this do so well for such a long period.  But lets not get too down on trading.  Its just too time intensive for most of us.  The great George Soros once joked that an investment is just a speculation gone wrong!

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#14) On August 24, 2007 at 6:42 PM, cachalot1 (< 20) wrote:

I think the lesson here is not so much in holding your stock( I agree it makes since in the long tem) but to do your due dilligence and not be swayed by the panic of others .

No you won't be right 100% of the time, deal with it. Information is your best friend. Emotions will just get you into trouble.

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#15) On September 20, 2007 at 12:11 AM, PoorBloke (< 20) wrote:

Excellent info.

My biggest blunder was during the Internet boom where it seemed that any rumour could ignite an explosion in a particular stock or sector. Yahoo bought a streaming video content company, and I read about other companies who were in the same field. That took me about five minutes, so not exactly what I would call "Due Diligence" :) I bunged a wadge of money into three of them, and watched my investments soar by about 30% in a week.

Then I held.

And the bubble burst.

VDAT, now known as ONSM was the worst hit. Have a look at the 10 year chart here:

http://finance.google.com/finance?client=ob&q=ONSM

1999....what a year. Up from my buy price of arond $200 to over $400 in a matter of weeks.

Buy and hold! I was told. So ended up selling at £20 or thereabouts.

This "Buy and Hold" strategy has worked for me since, given that the company is stable and the fundamentals are good, but boy, did I take a haircut on that one! :D

Cheers, PB

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