The Stock That Burned Me: Google

Worldwide Invest Better Day 9/25/2012

Most of my early investments are more instructive than my later ones. That could simply be because my later ones haven't had as much time to come back and bite me, but I just assume it's because I've actually learned something from my early mistakes. In any case, I hope some of you can take a lesson away from my missteps, because, boy, do they hurt to reflect upon.

How it caught my eye
The first time I ever touched equities I was in high school. I bought shares in the now-ubiquitous search-engine monster Google (Nasdaq: GOOG  ) . It was April 2005, less than a year after the company went public at $85 a share, and I'd been watching in awe as the stock continued to skyrocket. I was an ardent user of Google, and I found its sleek, simple interface far superior to Ask.com (aka "Ask Jeeves"). It was time for Jeeves to go.

And it was time to pile into Google stock. I invested every penny I had in Google, buying in at $220 per share.

Now, I happened to buy in at a time when it was fairly easy to be a Google shareholder, and most of the "volatility" the stock experienced merely showed itself through abnormally high returns, which is still my favorite type of volatility. In short, all was well, and the stock got as high as $313 in July, less than four months after I'd bought in.

Alas, the blissful ride was about to come to an abrupt end, thanks to Yours Truly.

What went wrong
Suddenly, the stock started behaving very differently. It began to -- gasp -- go down! It struck me as very un-Google-y, and I quickly became extremely concerned.

I'd had just about enough of this downward volatility stuff. I liquidated most of my position at $287, keeping a few shares just in case it resumed doing what it was supposed to do. The stock wasn't quick to pick up on my wishes, and within three weeks I sold the rest of my shares at $277 a pop. Six years later, I would buy back in at an average price of $553 -- or about twice as much as I sold them for. Did I mention I sold all my shares again less than a year later at prices about $100 lower than today's? Well, I did that, too.

The takeaway
My Google debacle was a painful prequel to an even more hurtful experience of the same kind with tech rival Apple (Nasdaq: AAPL  ) , where I would idiotically sell out of the stock at $73, only to buy back in at a price tag of nearly $400. I have made money, as Apple stock is now trading at all-time highs near $700, but I missed out big time on some much larger returns. Incidentally, Apple still remains one of the top two picks on my CAPS page.

I learned a few things from my first experience with the stock market. The first was about diversification: Never put all your eggs in one basket. I ended up making money on the Google trade, but I very easily could have seen my life savings disappear. My lack of diversification was part of the reason I freaked and sold everything. The daily swings were massive: I couldn't stand to see my total worth up 10% one day and down 10% the next. You won't often see those kinds of fluctuations with a diversified portfolio.

The second lesson is a classic Foolish idiom: Buy companies you love, and if you believe in their long-term staying power, then hold on for dear life. Don't mind the day-to-day volatility; if you still believe in the business, don't sell out. Certainly don't sell on dips, anyhow.

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.   

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Fool contributor John Divine owns shares in Apple. You can follow him on Twitter, @divinebizkid, and on Motley Fool CAPS, @TMFDivine. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services have recommended buying shares of Apple and Google 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.


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  • Report this Comment On September 19, 2012, at 11:09 PM, kbear2 wrote:

    Totally agree with the sentiment that you should invest in what you truly believe (if you have done some homework as well).

    I bought Apple back in 1997 when Steve returned because I felt he would bring the company back to life. When the first iMac came out I was assured of my belief and bought more.

    Alas, like you I sold off much of my 3600 shares as time went on but still derived a few hundred thousand of profit along the way.

    At present am holding on to the 1500 I have left and am determined not to be foolish again.

  • Report this Comment On September 20, 2012, at 10:54 AM, TMFDivine wrote:

    Hey, a few hundred thousand ain't bad!

    Yeah, I (hopefully) have learned my lesson and still think Apple is a great company--I'm holding on to my shares for the foreseeable future.

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