At The Motley Fool, we believe in a buy-and-hold strategy and trying to achieve steady market-beating returns over time. However, sometimes investments just turn out to be home runs. We asked three of our analysts to share a little bit about the single best investment they ever made. Here is what they had to say.
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Eric Volkman: My greatest hit was e-security firm Check Point Software Technologies (CHKP -2.54%), which I bought just before the explosion of dot-com stocks at the turn of the millennium. The company's financials were to die for; its balance sheet was squeaky clean, its revenues were growing fast, and its net margins (typically 40%-50%) were monstrous. And on a price-to-earnings basis, the shares were impossibly cheap.
It was blindingly obvious to me that there was no way a stock with that sort of profile could stay at its bargain-basement level. So I bought in at a little under $20 a pop. The market, once it was done feasting piranha-like on dot-com shares, soon discovered the better value of a company that served the entire e-industry and had actual profits, in contrast to many Internet darlings of the time.
Check Point stock skyrocketed, and I sold my position at more than four times what I paid for it.
I still think highly of the company. Cyber security is even more of a concern these days than it was then. Check Point continues to grow its revenues, and those margins are as fat as ever. It continues to be a standout in its industry.
Matt Frankel: My best investment of all time was Keurig Green Mountain (GMCR.DL). After a few less-than-stellar quarters, as well as intense speculation about the effects of the company's K-cup patents expiring, shares dropped by more than 80% between mid-2011 and mid-2012. The shares hit bottom at around $17, and I got in a little early, when they were trading for around $24.
This investment taught me an excellent lesson -- investing is not always about the numbers. The main reason I bought shares, other than the fact that I thought they were ridiculously cheap, was because, around the same time period, Keurig coffee makers seemed to be appearing in the homes of every single one of my friends and relatives.
Analysts were very negative about the stock at the time, but I saw the potential of the company's product with my own eyes. And, as soon as the patents expired, some imitation "K-cups" did appear, but they weren't of the same quality.
Shares trade at around $140 today; however I decided to get out when the stock hit $80. The patent expirations didn't really matter in the long run, and the rapidly growing popularity of the Keurig coffee makers sent profits skyrocketing. And, I figured that more than tripling my original investment in less than a year-and-a-half was good enough. I still love the company today.
John Maxfield: I have my father to thank for the best investment I ever made. In 1998, I was the beneficiary of a modest legal settlement. Acting on my behalf, he invested the funds in a recently established agricultural bank -- it's not publicly traded.
Generally, that would be a horrible idea, as only a small percentage of new companies ultimately go on to be successful. However, three generations of my family had previously banked and partnered with the family behind the new company. As a result, we were intimately familiar with their ability to grow and operate successful businesses.
The value of my principal has since gone on to increase fivefold, and the annual dividends are now equal to 12% of the original investment.
I've learned two things from watching this bank slowly, but consistently, grow. The first is the importance of deal flow. Like his father, the president of the bank is a pillar of the community. He knows everyone and is highly respected. As a result, he's always attracted an outsized share of the banking business in the area.
The second thing is the importance of behaving counter-cyclically -- that is, of tempering one's emotions when times are good, and then doubling down when times are tough.
I can't emphasize enough how critical of a trait this is for bankers to possess. It's far too easy to write loans based on cash flow projections at the height of a business cycle only to later watch those projections -- and thus the underlying loans -- driven asunder when the economy stumbles.