If you're at all a baseball fan like I am, you've seen the movie The Natural. It's a gem, of course. But it's also far sunnier than Bernard Malamud's literary original. In the book, slugging right fielder Roy Hobbs is an embittered soul filled with daily regret. His titanic home runs are, in a sense, anger unleashed at a life that turned out -- as Robert Redford says in the movie -- "different than I expected."
Oh, how we know what you mean, Roy. You see, even the best investors have sad stories to tell. Of gains loved and lost. Of valuation models that used us and left us. And, worst of all, of stocks worshipped starry-eyed from afar.
Secret love ... gone wrong
Investors are often like the love-struck teen quaking with fear at the idea of asking the presumptive prom queen on a date. We see the competitive position. We love the valuation. All signs are pointing north. Yet we sit there -- salivating but, ultimately, failing to pull the trigger. And forsaking multibagger returns in the process.
This is a remarkably costly mistake, Fool. I know because I've lived it, as have many of my colleagues. And our wish for 2006 -- and, for that matter, 2016 -- is that you don't follow in our footsteps. So, in that spirit, what follows are our own personal tales of woe. Pour some coffee, grab the tissues, and read on.
David Gardner: The adventures of a bubble boy
There weren't many tech stocks that Motley Fool co-founder David Gardner wouldn't buy during the '90s, even at the height of the bubble. Here's one: Yahoo! (Nasdaq: YHOO ) . David identified it way back when the first Fool portfolios went online at AOL in 1994. He still couldn't pull the trigger a year later, in 1995, when the company went public. Says David:
It looked like a great company, and a solid online play. It also looked like an expensive stock once I began analyzing it shortly after that. I remember it was at a non-split-adjusted price of $29 a stub. I remember saying, "I will buy it if it JUST HITS $24." It upticked shortly after that. It never saw $24 again -- not nearly.
Tom Gardner: Make that a grande, decaf, soy, no-whip cup of regret, please
David was hardly alone. Younger brother Tom wonders what could've been if he hadn't stood on the sidelines as Starbucks (Nasdaq: SBUX ) reached for the heavens. After all, he says, the investing case was obvious:
They have a repeat-purchase business, no competition, great financials, high insider ownership; Howard Schultz is for real; and their VC-arm offshoot, Maveron, is our primary investor in The Motley Fool.
So why pass on the shares?
No reason whatsoever. I wrote positively about it. I believed it would be a great stock. We actually went on the TV show The View and talked it up as our top pick. I never bought it. Since then, Starbucks has risen from a split-adjusted $4 to $30. Over 10 years, that amounts to 22% growth per year -- far superior to the market's returns.
Mathew Emmert:Yeah, I know it's cheap, but it doesn't pay a dividend!
Sometimes our investing philosophy gets in the way. Take Mathew Emmert, chief advisor for Motley Fool Income Investor. Over the years, he's maintained the discipline to buy only cheap stocks paying meaty dividend yields. A few years ago, however, he spotted a very cheap Amazon (Nasdaq: AMZN ) . And, of course, he failed to buy:
The stock was hammered down to $6 at the time, but it bounced right back to $12 before I could make up my mind. Then it began to slide back to $9, and I said, "These guys are still the king of online retail with no major competitors, and they're about to turn the corner on profitability. If it gets anywhere near $6 again, I'm in." Yeah, right. That second drop never made it below $9. Of course, the shares are now close to $50. Shouldawouldacoulda.
Charly Travers: Can't you just throw in another 20%?
Great investors also get shell-shocked from time to time, refusing to buy anything that isn't drop-dead dirt-cheap. Bear markets just have a way of inducing that kind of behavior. In 2002, Motley Fool Rule Breakers biotech analyst Charly Travers fell victim to this disease and passed over Genentech (NYSE: DNA ) :
The year 2002 was an absolute bloodbath for biotech, and Genentech had been cut in half, dipping below $30 midyear (not split-adjusted). There was nothing not to love about this company. After Amgen (Nasdaq: AMGN ) it was the most successful biotech in the world and had the best science and pipeline in the industry. I figured I'd try to be a cheapskate and buy shares at $25. Well, that never happened. The stock held steady just above that buy point until the company released phenomenal results on its drug Avastin for colorectal cancer -- a drug that at the time had been left for dead but is now a blockbuster. Shares are now up sixfold over the past three years.
Tim Hanson: No, of course it isn't a fake I.D., sir
The truth is that investing is an every-market endeavor and that great buys can be found just about every day of every year. Ironically, it's the youth on our staff who have learned this lesson best. All of 24 years old and newly married, financial editor Tim Hanson puts it succinctly:
Ten years ago, I was 14 and in ninth grade. So I wasn't really looking hard into stocks (I started about four years later). Ten years ago, the stock I wish I'd bought was ... anything. Very similar to what Warren Buffett says -- I should have started sooner.
What are you looking at? Think I'm going gray just because I've three small kids and catch maybe six hours of sleep a night? Well, I've got news for you, bucko, that's white hair.
Me: Sure, it looks golden and delicious now ...
Finally, we investors can be paralyzed by obviousness. I blame Bill Mann. He says the obvious can't help you. He's mostly right on this point, of course. But in early 2004, it was plain to me that Apple (Nasdaq: AAPL ) was, at worst, a short-term winner. Turns out it was much, much, much more than that. Just check out how these Fools have done. Sigh.
The 33% solution
It doesn't have to be this way. Indeed, in responding to my request for sordid stock-market stories, Tom reminded us all that he advises Motley Fool Hidden Gems investors to buy in thirds. That way, he says, investors increase their odds of getting great prices without passing up obviously great businesses and huge potential gains:
I sold Dell (Nasdaq: DELL ) and Cisco in 1994 after a 20% and 25% gain. I had a lot down on both of them, too. So much so that I got worried about losing the gains. Dell is up 45 to 50 times in value since then. Even if I'd invested one-third as much in both and just held, Dell would be much larger than my entire portfolio today. Yowch.
Profiting from our mistakes
Investing is like baseball in nearly every way except one -- in baseball, it almost never pays to look back. Just ask Roy Hobbs. But here at the Fool, we look back to look forward. And as our analysts seek multibagger returns for the decade ahead, we're applying the lessons from our biggest investing mistakes to make sure that we don't repeat them.
Our efforts are paying off so far. All of the Fool's investing newsletters are beating the market, and some -- such as Hidden Gems, Rule Breakers, and Motley Fool Stock Advisor -- are doing so by double digits. Take a risk-free trial to any of them for 30 days on our dime. Or sign up now, and get Stocks 2006, our analysts' picks for the year ahead, free. Either way, all of you have to lose is the prospect of a richer portfolio.
Foolish best wishes for the New Year, and, of course, many happy returns.
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Dell and Amazon areMotley Fool Stock Advisorrecommendations.
Fool contributor Tim Beyers doesn't have many regrets. Not buying stock in Apple is most definitely one of them. Tim didn't own stock in any of the companies mentioned in this story at the time of publication. You can find out what is in his portfolio by checking Tim's Fool profile. The Motley Fool has an ironclad disclosure policy.