The temptation can be overwhelming to jump on a hot stock and make a mint in no time at all. Apple (Nasdaq: AAPL ) just can't miss, right? Back up the truck now! Twenty-seven out of 34 analysts recommend buying Gilead Sciences (Nasdaq: GILD ) ? Well, gilded Gilead must be gold! No, wait -- gold is gold! How can you fail with Freeport-McMoRan (NYSE: FCX ) ? Where's my broker when I need him?
But here's the problem: There is no such thing as a safe bet. That's why we still call it a bet.
Sure, some companies don't miss analyst targets very often. Gilead has hit or exceeded every Wall Street goal since 2004. Apple has never missed, and analyst estimates haven't even gotten close since 2005. Freeport McMoRan has only one earnings miss in the past 11 quarters. It's money in the bank!
Except that it isn't. Apple's stock has dropped more than 10% in a matter of days or weeks on three separate occasions the last year, despite continued earnings excellence. Same thing for Freeport, including a 20% summer slide. Gilead has fared somewhat better, but two-day drops of 5% or worse are common sightings on that stock chart. Nothing is 100% safe.
Foolish trading guidelines force me to be good -- I usually can't jump on my latest darling stock on the spur of a moment, because I tend to find these opportunities while writing about them. Since I can't touch that "buy" (or "sell") button for the next 10 days after that, I get some time to cool down, reflect, and dig deeper. And I have to hold everything I buy for at least a month, so trying to ride a single event like high expectations for an earnings report just won't work for a gainfully employed Fool.
But there are skeletons in my closet. Before joining the jingly ranks of financial jesters and knaves, I'd sometimes fall hard for a stock and load up on something like Build-A-Bear Workshop (NYSE: BBW ) based on flimsy research or even just something I read in a single story. Sometimes it worked out, and sometimes it didn't. I made some money and lost some money, thanks to analyst comments, or retail experiences in a single store, or something a Fool wrote.
And it got worse. Not long before I signed my Foolish contract, I was in the very, very bad habit of going all in on these bets. See, it worked really well once or twice, buying short-term Pixar stock options before Disney (NYSE: DIS ) bought them out and making a 150% profit overnight. But then, inevitably, I hit a cold streak and lost all those gains on expired, worthless options in Overstock.com (Nasdaq: OSTK ) and IMAX (Nasdaq: IMAX ) . There was no way those companies could miss their targets. Not this time. Yet they did. In one case badly, in the other by a hair -- but either way, my entire investment was now worth nothing at all. Did I say investment? Sorry, I meant gamble.
I can't gamble on the stock market now even if I wanted to, and my portfolio is much better off as a result. My IRA account has seen a 28% dividend-adjusted return so far this year, versus just 8.3% for the S&P 500. I've sold three stocks since the New Year after holding each for more than two years, and I've bought four that should stay with me for years to come.
So what can I do?
Gambling is gambling. While it can be fun, it's no way to make a living or build a nest egg. Foolish discipline forced me to take my investing seriously and not trade on a whim. Mr. Market is a moody fellow, and you just never can tell which way he'll jump.
Freeport-McMoRan has doubled in the past year, despite the repeated short-term dips; Apple is up 130% in the same period, and Gilead is up a very respectable 34%. But a badly timed in-and-out trade in any of these stocks might have lost you a chunk of change, and a missed option bet would be down 100%.
You know the Foolish mantra, right? Buy and hold for the long term. It's a central tenet to every newsletter service, whether you're looking to unlock the hidden value in an Inside Value recommendation or ride out the tumultuous volatility in a Rule Breakers pick. Sign up for as many free 30-day trials as you like, and get the help you need to build an excellent long-term portfolio. And while you're at it, maybe you should volunteer to live by our trading and disclosure rules, too. It's fun, it's Foolish, and it's good for you.