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The Stock That Burned Me: Apple


Worldwide Invest Better Day 9/25/2012

You'd be surprised what you discover by going back and looking over all your trades. You'll have at least some hazy memories of your biggest hits and most unforgivable gaffes, but financial statements bring back all the gritty little details, sparing nothing. They get right up in your face and tell you: "This is how much you lost. This is how quickly you lost it." Or, as in the painful case I'm going to share with you, "This is how much money you could have made."

A great buy
Premature sales are missed opportunities, plain and simple. Money that could have been yours never comes, because you sell before shares skyrocket. Now, this has happened to me on more than one occasion, but my No. 1 premature sale, The One That Got Away, was Apple (Nasdaq: AAPL  ) , and it was in 2006.

In February 2006, the Dow Jones (INDEX: ^DJI  ) was under 11,000, the S&P 500 (INDEX: ^GSPC  ) was more than 16% below current levels, and Apple stock traded at $66.46 when I first bought into it. The stock had been steadily climbing from lows of less than $7 per share in 2003 -- quite a rally, and a run that caught my eye, attracting me to the stock and the underlying company. As we all know now, the innovation I noticed then ended up continuing, and the company turned out all right.

Followed by an egregious error
The stock continued its rise, and, having traded stocks for about a year by then, naturally I praised my prodigious financial savvy. Three months later I sold all my shares for almost $73 apiece, or nearly 10% more than I bought them for. Not bad, I thought.

But wait! I bought them back a day later when the stock went on sale for a dollar less than my sale price. I would go on to sell them four months later for a $4-per-share gain. I thought I was Gordon Gekko. Those delusions quickly left me, and the next time I bought the stock, it was five years later and it had risen 511% since my first purchase.

Come to think of it, I probably should go to jail, for my sheer stupidity.

The takeaway
So what did I learn from these situations? What can you take away from my missed opportunities? What I learned above all is that patience is a virtue, especially in investing. When you buy into companies that you like, you can't get the jitters and sell on the dips, because they are, by definition, the worst times to sell.

If you like the company and the stock isn't doing well, don't freak out. Go over its financial statements, read its press releases, do some research. Decide whether the company is still as good as you thought it was to begin with. If it is, maybe the market isn't telling you to sell -- perhaps you should think about picking up a few more shares while they're on sale.

In the end, I've learned from experience that it's best to abide by the old Motley Fool rule of thumb: Invest only in companies you'd be comfortable leaving your money in for 10 years. I certainly would be better off if I'd stuck to that principle from the beginning.

The Motley Fool is here to help, and that's what our Worldwide Invest Better Day on Sept. 25 is all about. We want to share what we've learned with you and help others create more fruitful lives for themselves. Check out our Worldwide Invest Better Day site and sign up to receive articles, videos, and podcasts that aim to make your investing process less difficult and more lucrative.   

Apple remains one of my top two picks on my Motley Fool CAPS page. To learn more about Apple, read through The Motley Fool's premium report on the company, which details some opportunities and risks facing the tech giant today.

Fool contributor John Divine owns shares of Apple stock, but not nearly as many as he could have if he'd just held onto them the first time around. You can follow him on Twitter, @divinebizkid, and on Motley Fool CAPS, @TMFDivine.

The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and creating a bull call spread position in Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (7) | Recommend This Article (9)

Comments from our Foolish Readers

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  • Report this Comment On September 16, 2012, at 10:41 PM, 1984macman wrote:

    I have a different story to tell. I always knew I wanted to move on Apple, and did manage to get a few shares salted away. But I really wanted to move the lions share of my 401k into Apple. Unfortunately, that was impossible. Finally a little over two years back I got my chance. My employer rewrote the company rules to let people over 63 ( which I was) roll their 401k's over into IRA's. I took the whole magilla and turned into Apple shares, buying in at about $250/share. I have since been "forcibly retired" from my job, and thanks to that move can actually start my retirement in earnest!

  • Report this Comment On September 17, 2012, at 1:38 AM, baxelis wrote:

    You made three trades in Apple, made money on all of them and didn't go to jail. Maybe you should feel smarter than Gordon Gekko!

  • Report this Comment On September 17, 2012, at 1:53 AM, demodave wrote:

    John, the particularly sad part of your story is that these were short-term trades (less than 12 months holding the stock), so they were subject to ordinary income taxation. While I agree with the Fool's rule of thumb that taxation should not drive investing decisions, taxes should not be overlooked in such decisions.

    Buy 66

    Sell 73

    Delta 7

    Tax 1.5 (guesstimated)

    Stock must fall by more than 1.5 to justify a repurchase to set a new cost-basis.

    I've got a story like yours, too, though. I bought at 9 and sold at 55 to trade into "more stable" JNJ. JNJ has definitely been more stable: it's been flatlined since then. :\

    And $600/share is a lot of moey to leave on the table. It's part of the game of investing.

  • Report this Comment On September 17, 2012, at 1:55 AM, demodave wrote:

    Oh, I should add: my sale was after the split and I only sold the "free" shares generated by the split, so I *do* get to have that $600, and I have certainly added more shares since. :)

  • Report this Comment On September 17, 2012, at 3:37 AM, sitaifun wrote:

    I bought in around $20, then more at around $40 on the way down to $13 (hard to pick those bottoms), and then more around $20 on the way up. Lately I've added some to an IRA at $290 and again at $575. Luckily I was too lazy to sell any of it yet. Sure, I lost major opportunities to sell on big corrections and then buy back on the way up; probably would have doubled my holdings easily. But still I can't complain!

  • Report this Comment On September 17, 2012, at 1:43 PM, XMFDivine wrote:

    @baxelis The not going to jail part of my adventure about the only part of this story I'm not ashamed about haha...

    @demodave You're right about those taxes. Particularly sad indeed. I don't blame you for trading into something more stable; it just so happens that the stock you traded out of has been one of the best performers of the decade. Good for you for holding on to some shares and adding on the way up to current levels.

    @sitaifun I think you use "too lazy" when you mean "too prescient." I wouldn't complain if I were you, either, those are some gnarly returns!

  • Report this Comment On September 17, 2012, at 2:17 PM, vjalukar wrote:

    Shouldn't have listened to Cramer...

    Bought AAPL in '08 for 140s. It dipped a bit and then hovered around 200 for much of '09.

    Cramer: "This apple is fully baked. 180 to 200 is tops."

    So, sold it at 205, and it promptly climbed to 250 in early 2010.

    My 10 year-old (and his friends) convinced me that their products were really in demand, so started to look at it again.

    Caught a dip at 240 and bought back in.

    Still laughing, and Looooong on AAPL

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