When flipping through old financial records the other day, I spotted a confirmation notice for when I sold shares of Amazon.com (AMZN -1.65%) long ago. I've thought about that decision over the years, lamenting that I missed out on some hefty gains. After all, it's Fool co-founder David Gardner's first 100-bagger, increasing in value more than 100-fold over the 16-plus years he has held it -- and it would have been a huge gainer for me, too.
David bought his shares in 1997, and I bought mine about seven months later, in 1998. I spent about $4,000 on my shares and sold them a little less than three years later for close to $6,000. That gain of roughly 50% is not bad, but it could have been so much more. Those shares would be worth more than $200,000 if I still held them today. (And if Amazon shares keep growing -- which is likely -- and double in value two more times, my surrendered shares would approach $1 million in value.) Still, this regret does not keep me up at night. I'd like to share some reasons why I'm OK with the loss, hoping they might help you deal with some regrettable moves of your own.
For starters, It's not as if I lost $200,000; I simply missed the chance to make a fifth of $1 million. Second, it's important to understand that every investor makes blunders. Even Warren Buffett has regretted some of his investment decisions.
Remember, too, that no one can predict the future. Looking back, it's clear that hanging on to my Amazon stock, and even buying more, would have served me well. But back then it wasn't so clear. In early 2001, the company sported considerable debt, and management was forecasting slower near-term growth than had previously been expected -- around 20% to 30% instead of 40% or more. It also announced some layoffs in order to reduce costs. There were still reasons to be hopeful about the company's future, but my worries weren't unfounded, either.
Another reason I'm not kicking myself too much for having sold those shares is that I wasn't an expert on Amazon. To have the best odds of success in investing, you should study your holdings closely and be well-versed in their strengths and challenges. Otherwise, you're really taking chances. Of course, even those with deep insight into a company can be taken by surprise, but it's less likely to happen if you know your stuff. And I didn't.
Your best ideas
It's also useful to look at the big picture. Sure, I left $200,000 on the table by selling so prematurely. But remember that I walked away with $6,000, which I invested elsewhere. I can't pinpoint exactly which stock or stocks that money went to, but I know that over the years I've invested in many companies with a wide range of results. Overall, my nest egg has been growing. If that $6,000 grew by an annual average of 10% since 2001, then it has become more than $20,000 by now. That's not $200,000, but it's not $6,000, either.
Also, if Amazon wasn't among my most promising stock ideas in 2001, I was right to sell out of it and move those funds elsewhere. We should always be invested in our best ideas when establishing new positions or adding money to existing ones. After all, why invest in your 104th-best idea when you can add to your top idea(s)? I hadn't researched Amazon enough to be fully confident in it. In 2000, the company counted 20 million customers and revenue of $2.8 billion. Revenue is now more than $74 billion, and Prime members alone top 20 million. I might have been able to guess at such growth at the time, but I was far from certain.
It's smart, too, to make sure that a stock fits your needs. I'm more interested in dividend-paying stocks these days than I used to be. While Amazon may have great promise, I'm also considering stocks such as Freeport McMoRan Copper & Gold (FCX 2.40%), which offers a 4% dividend yield and is a powerhouse not only in valuable metals but also in energy thanks to some oil and gas acquisitions. That diversification can decrease its risks. It is benefiting from a rise in copper and gold prices, though copper has slid recently, and some also worry that a slowdown in China's growth will dampen demand for the company's offerings. Another possibility is Realty Income (O 0.24%), a retail-focused REIT that yields a fat 5.2% (with dividends paid monthly) and boasts steep occupancy rates and improving tenant quality. It favors long-term leases, too, which makes for steady and predictable revenue. In 2013, its revenue surged 58% over 2012 levels, while adjusted funds from operation soared by 69%. Neither of these two companies is as exciting as Amazon, but both are solid performers.
A missed chance isn't always the last chance
Sometimes it's not too late to hop on the bandwagon. I may have lamented that sale for many years, but a few years ago I finally decided to open another position in Amazon, and I'm up 80% so far. It will probably take me a long, long time to get to $200,000 in Amazon, but at least I can watch the company's progress as a shareholder. Amazon has a long history of looking overvalued while continuing to climb, and I see that continuing, at least for the next few years. Its recent decision to hike its Prime subscription fee from $79 to $99 hasn't been universally embraced, but it strikes me as a good move, bringing in hundreds of millions of dollars of profit directly to its bottom line. The company's last quarterly report was a bit mixed, with earnings coming in below expectations, but its long-term prospects still seem promising to me.
As you go through your investment life, expect to make some regrettable moves. Don't beat yourself up about them -- just learn from them and move on.
