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Each year here at Fool HQ we hold our annual "Student Investor Day." Students from all over the country come to get a better look at what we do here and why we're so passionate about it. During this year's question and answer panel, one of the questions submitted was "What do you consider to be your biggest investing mistake?"
Omission versus commission
It seems like this would be pretty easy to answer for most: Just figure out which investment you lost the most money on, and boom, Bob's your uncle. But the reality of the situation is much different for many. And while this wasn't one of the questions I fielded, it did get me thinking about how I would have answered.
I'm not necessarily talking about mistakes of omission, like the fact that I never bought stock in Apple (Nasdaq: AAPL ) . True, Apple has returned 4,700% over the last decade, but I can't jump in there and say that was my worst mistake ever. By that logic, most people's worst mistake might be the very same thing. Heck, I've neglected to invest in some of the greatest winners ever. Just take a look at how shares in these companies have fared over the last decade:
||Returns over last decade
|Intuitive Surgical (Nasdaq: ISRG )
|Priceline.com (Nasdaq: PCLN )
|Netflix (Nasdaq: NFLX )
|Amazon.com (Nasdaq: AMZN )
Do I wish I had invested in these companies a decade ago? Sure. But my mistake goes back before any of this would have really even been a possibility.
Apple is the company responsible for all of the iDevices that have infiltrated our lives. But did you know that the iPad is the company's quickest-selling device? It's true. It took only two years to sell 55 million of the revolutionary tablets compared to three years for the iPhone and five for the iPod. And it looks like there is still plenty of room left to run, too. Intuitive Surgical is the clear leader in robotic surgery and as it stands the company has 2,132 da Vinci systems installed worldwide. But more than 70% of these are in the U.S., and as Intuitive's global push continues, it looks like the growth is only getting started.
Say priceline.com and most consumers immediately think Captain Kirk. Fair enough; William Shatner fronted a pretty killer ad campaign here in the States. But it's the international side of the business that has investors excited about this enterprise. Booking.com, the company's European counterpart, offers 195,000 hotel rooms in 160 countries, and as the company focuses on new markets in Asia along with South and North America, where demand is growing even faster, Priceline has plenty of room to run.
An ill-timed price hike and the Qwikster debacle had Netflix subscribers running for the exits, but they're starting to come back now. The good news is that management is staying disciplined and will not be launching into additional international markets until the ones they already have achieve global profitability. Not one to rest on his laurels, Amazon.com CEO Jeff Bezos continues to find new ways to change the game, and with the possibility of the retail behemoth opening its first physical retail store, this could be one more way Amazon is opening up their world of possibilities for consumers all over the world.
How much have you lost?
I've been very fortunate in my investing life not to have lost a debilitating amount of money. Sure, I've made some mistakes and lost a little money here and there. But I've been a pretty active investor in making sure I know what's going on in my portfolio; I mean, it's my money, after all.
Superlatives are tough as it is. The biggest mistake may seem obvious one day and questionable the next. But I know what mine is, and I am very glad it happened when it did. In hindsight, it's the best thing that's ever happened to me as an investor, really -- along with the fact that I recognized it and have actually learned from it.
In the beginning
As I was starting my career in the golf business, my father opened a brokerage account for me with a big-name broker who shall remain nameless. This was well before online brokerages were setting the tone; it was a "call your order in for a $50 commission" kind of setup. Anyway, I had a couple of holdings in the account in Dell and Walgreens that had been given to me by my father as Christmas gifts, and I was enjoying my status as a shareholder in a couple of businesses. But the truth of the matter was that I essentially knew nothing about them other than the obvious "computers and a drugstore" description. My father had piqued my interest in investing when I was a kid, but he's a doctor by profession, so even he had a lot to learn.
So the local representative for the brokerage where my account was maintained called to see if I could come in and speak with him about my goals and such. So I did. We went through the whole deal and I told him how I wanted to retire, rich, at 35. As we went through the actual math, I quickly realized this wasn't going to happen.
He recommended that I start with a dollar-cost-averaging program in which I would send a check in every month and they would invest in their "best ideas." Again, this made sense to me at the time, because what did I know, really? So I signed up, and the first stock he bought me into was Cisco. This continued for a number of years until it hit me …
… like a punch in the face
I began to realize (slowly) as I mailed in check after check that I couldn't tell anyone even one substantial thing about my investments, other than their names and tickers. Nothing. What's worse is that I'm fairly certain that the representative's knowledge was quite limited as well. To be fair, I completely acknowledge that possessing this knowledge was not, technically, part of his job. He wasn't a stock research analyst or even an advisor. He was an account manager getting me into the stocks that his company wanted him to get people into. I get it and I don't blame him for anything. Thankfully, this tale doesn't end with me losing my shirt.
But it could have. And I know that now. I was investing my money, the money I had earned, in something that I had no true knowledge of whatsoever. I couldn't tell you why these companies were better than their competitors (assuming they even were), how they actually made money, I could tell you nothing about management nor valuation and I for sure couldn't tell you why or when I would sell them. I mean zip. Yet I was in 'em. And when I discovered The Motley Fool a few years later it finally dawned on me how big my mistake was and how bad the outcome could have been.
This is it…my mistake!
My biggest investing mistake was investing in individual stocks and even a mutual fund and not knowing what I was investing in. I was taking no true accountability for my actions and no ultimate responsibility for my money. I was just taking someone else's word for it all. And the worst part is that it's so easy to do! But it was my money, not theirs. I mean, is there anyone in the world who cares more about your money than you do? Speaking for myself, the answer is an emphatic NO!
You're probably wondering, "But what about mutual funds?" True, these are funds that are made up of many companies and nobody can possibly know what they all do and why they're necessarily good investments. But that's just the point of mutual funds (at least the good ones): They're diverse by nature so you don't have to worry about it. And even still, most mutual funds still underperform. The same thing applies with any fund, really. And even then, wouldn't you want to know the main holdings, record of the fund, management, fees, etc.? I know I would (at least now I do).
Helping the world invest. Better.
When I see what we're doing at The Motley Fool every day, I'm extremely proud of where we are and where we're going. Of course anyone can subscribe to one of our services and just blindly invest. They can just take our word for it and hope for the best. And I would argue that they would be making the same mistake I made. That's why we don't recommend it. And that's why you'll see volumes of excellent research on what we buy and why we're buying it (and when we sell it). The individual investor can learn more about these companies and decide for themselves whether it's their cup of tea or not.
At the end of the day, if you are going to invest, you're either going to be a fool, or you're going to be a Fool. The choice is yours. Thankfully, I learned from my mistake. One thing these five superstocks I've talked about have in common is that they're part of David Garnder's Foolish universe of recommendations, companies that he calls "the greatest businesses of our time." Soon we'll be opening up our revolutionary new real-money portfolio service, Supernova. If you are ready to invest in with David or just learn more about his philosophy, simply enter your email address in the box below to get started with a free video from David himself.