How You Can Get Rich With 4 Dumb Mistakes

I've written a lot of stupid things over the years.

It's true. I've been with The Motley Fool since 1995, and I'm closing in on a whopping 10,000 articles. As a limb-venturing analyst, I take big swings from time to time. I sometimes whiff badly.

Tastes like crow
Here are some of my more regrettable calls over the years:

  • "This may be the easiest bull argument I'll ever make," I wrote shortly after Crocs (Nasdaq: CROX  ) had peaked two years ago. "The shares are cheap. The company is misunderstood.
  • "Yes, Sirius (Nasdaq: SIRI  ) matters again," I wrote in November 2004, as the satellite-radio operator hit a new 30-month high and a $5.5 billion market cap. "If things pan out just right, the stock will be worth every penny."
  • "Despite its financial bent, E*TRADE (Nasdaq: ETFC  ) wasn't stung by subprime woes in its lending business," I wrote two summers ago, after the discount broker's badly received quarterly report.
  • "Something special is happening at Six Flags," I wrote in March 2006, weeks after the amusement-park operator's stock hit double digits for the first time in more than three years. Special? The regional chain filed for bankruptcy reorganization this year.

All four of these stocks are trading markedly lower today.

Stock

Rick's Call

Price

Now

Loss

Crocs

Dec. 6, 2007

$45.21

$6.81

85%

Sirius

Nov. 16, 2004

$4.71

$0.70

85%

E*TRADE

July 26, 2007

$19.05

$1.45

92%

Six Flags

March 9, 2006

$10.44

$0.12

99%

Source: Yahoo! Finance.

I can't run away from my mistakes. Even watching Crocs and Sirius rally sharply off their lows this year doesn't make the sting go away. I went out on limbs, and the branches cracked.

Humble pie with a cherry on top
If this self-effacing excursion feels like a ridiculously circuitous route toward a back pat, you're right. I'm willing to own up to my blunders -- and relish them, actually -- because there's a secret to getting over the misses: the long ball.

Baseball purists know that Hank Aaron hit 755 homers in his illustrious 23-season career. Few will tell you that he also struck out 1,383 times. He failed more often than not in touching all the bases. Do fans care? No. In one powerful swing, Aaron could change the course of a ball game.

Investing is the same way. It's not about the misses. It's about the slugging percentages.

"A dot-com upstart winning over a skeptical market with market-crushing quarters?" I rhetorically wondered in February of 2006, as Baidu (Nasdaq: BIDU  ) delivered yet another better-than-expected report. "Maybe there's more of Google (Nasdaq: GOOG  ) in the Baidu DNA than we think."

The stock closed at $54.73 that day. I officially recommended it to Motley Fool Rule Breakers newsletter service subscribers a few months later. It has been on fire ever since. China's leading search engine just surpassed Yahoo! (Nasdaq: YHOO  ) for the runner-up spot in worldwide search-market share. With shares changing hands at roughly $340 these days, we're talking about a stock that has more than quintupled since my bullish pitch.

In other words, even if Crocs, Sirius XM, E*TRADE, and Six Flags went to zero, a similar investment made in each of those four stocks and Baidu would still be profitable today.

If you're lucky enough to snag a five-bagger, it gives you the flexibility to strike out four other times.

Just keep swinging
This isn't lip service. I have publicly owned Netflix (Nasdaq: NFLX  ) since October 2002, with a split-adjusted cost basis in the low single digits. It has been a 10-bagger for me. If I feared competition, I could have invested in the now-bankrupt Hollywood Entertainment and Movie Gallery chains -- several times over -- and still be ahead.

In the end, our scorecard is smoking the market by an average of 14 percentage points per recommendation, because we're able to hit it out of the park from time to time. A fistful of winners can be more powerful than a bucketful of losers.

So bring on my next mistake. And the one after that. You don't have to get it right every time. All you have to do is make sure that when you're right, you're really right.

If you're curious and would like to see which promising stocks Rule Breakers analysts think could be the next Baidu or Netflix, simply follow this link for 30 days of free access to our top stock recommendations.

Longtime Fool contributor Rick Munarriz is off to the batting cages. He owns shares in Netflix. Baidu and Google are Rule Breakers recommendations. Netflix is a Stock Advisor pick. The Fool has a disclosure policy.


Read/Post Comments (25) | Recommend This Article (49)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 29, 2009, at 8:18 AM, los40d wrote:

    This guy is really good.

    He is wrong at the top and wrong and the bottom.

    Stick to writing "financial" articles and not trading stocks or you will never be rich.

  • Report this Comment On August 29, 2009, at 9:57 AM, YankeeTrader56 wrote:

    Well, you can easily redeem yourself by recommending Etrade now at 1.60. With all their troubles behind and sufficient capital in place, this will be the comeback stock of the decade.

  • Report this Comment On August 29, 2009, at 10:30 AM, RAF22 wrote:

    Re: Sirius XM - I second the comments by Ios40d above; Absolutely "wrong at the top and wrong at the bottom". Motley Fool commentary over the last several months has been uniformly negative on every Sirius XM development - events which, in actuality, have been extremely positive for the company and the basis for a major recovery in the stock (SIRI). This constantly negative spin by the writers for TMF has caused readers to miss one of the true turnaround stories of the past year and led to substantial ongoing losses by those holding short positions from the lows based upon the poor advice seen repeadedly in TMF commentary. Take a look at the two dominant stories now driving the rise in SIRI's share price and sustaining technical strength in the stock: Tremendous potential for future revenue growth from the resurgence in auto production into the future, as the ageing U.S. fleet is replaced and upgraded, and expansion of satellite radio capability also along new wireless platforms - domestically and internationally. SIRI has been "climbing a wall of worry" - and much of this false worry has been coming from inaccurate analyses seen in TMF commentary in recent months. It is not too late, however, for your writers to objectively critique all that is taking place with Sirius XM and get on the correct side of this company's recovery. There is much more upside to be seen in future months and credibility will be enhanced for those who accurately advise within this flow.

  • Report this Comment On August 29, 2009, at 12:10 PM, dishguy1967 wrote:

    Thank you RAF22! If I didn't know any better I would say that this guy is trying to manipulate the market. How many times in those 10,000 so called articles has he dumped on Sirius? Again I will not sit here and tell you that Sirius does not have many issues but for God's sake man just leave the dead horse alone!

  • Report this Comment On August 29, 2009, at 2:05 PM, killab73 wrote:

    thanks for admitting you have no clue on what you are writing about. 10,000 articles in 14 years, and some how 9,960 of them include the the stock symbol SIRI. your posts suck, as do all of the other TMF blogs. crap...crap...crap!!!!!

  • Report this Comment On August 29, 2009, at 2:15 PM, tenpiece wrote:

    I sold siri at .75 for a nice 3 bagger profit. The next leg up should be around earnings. I'll try to get back in if my latest investment does not perform as planned.

  • Report this Comment On August 29, 2009, at 2:48 PM, stkdn wrote:

    Motley Fool??....I will be the first to say I was wrong about SIRI. I was a constant nag about the stock,and I am wrong,but YOU are supposed to be some sort of Expert about these things. I don't know,maybe it's because I own it,but do you research before you write an article? This stock was bailed out by one of the most powerful media players in the market. They surly must have a reason to do this. Siri has already began making moves to repay the debt. The stock is going positive everyday now. Not a lot,but it is moving in the right direction and you are ragging on it again. Maybe I am overreacting ,but all Motely has ever done to this stock is rag on it. Sorry,but Siri will be at 1.50 by the end of the year.....EVERYONE has said that..........Dude....you are something else.

  • Report this Comment On August 29, 2009, at 3:05 PM, DiscoFinance wrote:

    Sirius XM is up over 1000% since the movie about Sirius XM came out. The movie is called "Stock Shock" and the SEC apparently has seen it. Stock Shock may have helped chase short sellers away. Amazon has it or stockshockmovie.com

  • Report this Comment On August 29, 2009, at 7:56 PM, doogie1234 wrote:

    Hey Rick - there's this new thing they just invented. It's called "averaging down." For a stock like SIRI, it can make a lot of difference on your ROI (that's Return on Investment, since you don't seem to know much about investing). You should look into this new idea. Remember, it's called "averaging down." Look it up (google it) - it can be a helpful investment strategy and give a much truer picture of how an investment has performed.

  • Report this Comment On August 29, 2009, at 10:07 PM, Zalan37 wrote:

    I used to enjoy reading Motley Fools' articles and thought the contents were very informative however now I rate the website just as useful as Jim Cramer's TheStreet.

  • Report this Comment On August 30, 2009, at 9:18 AM, Riot5000 wrote:

    When you know that you do not know what the hell you are talking about, and keep talking anyway, that makes you more than a fool; especially if you are helping countless numbers of fellow clueless commit Fiscal suicide.

    Motley Fool would get a little more credibility if they stop PUMPING the stocks they own, even as the stocks die a slow and painful death.

    I have used a reverse process with motley fool for 5 years, and I sell anything they recommend as a buy.

    I have come up ahead EVERY SINGLE time.

    Sometimes, I must admit, I have followed their recommendation and made it big.

    You have to be your own analyst, use Motley Fool as spotter of stocks, which you then study, analyze and decide if to follow their recommendation.

    A chimp will outperform the Motley Fool every time, so, they are no better tahn any other NOVICE out there.

    AOB, and FEED which the Fool likes to Pump have UNDERPERFORMED most stocks since March Rally, but FOOLS keep pumping them every day.

    Grow some head, take the Fools with a grain of Salt, just like you would follow that loud mouth SCAM called Jim Crammer.

    Hell, follow by postings and you will make a ton of money under GCOCK10 on the Yahoo Finance Board.

    Now, buy MERR tomorrow, and buy one of Motley Fools recommendations.

    Compare their performance by end of the Week and tell me what you got.

  • Report this Comment On August 30, 2009, at 11:19 PM, joeBOBmba wrote:

    I am new to the world of investing. I have been trading a couple of years now. I think that I have done pretty well. I also started reading mtf articles by Rick. I have to say that I was a bit sceptical of what he had to say about SIRI. I thought it was just me that thought Sirius would be okay. I'm glad that I held on to it after buying in at .35 a share despite what Rick said. After reading what everyone else thinks about Rick's articles I know now that it is not just me. Rick my friend, YOU SUCK!!!

  • Report this Comment On August 31, 2009, at 12:53 PM, edyboom223 wrote:

    Way to stick to constructive criticism guys. You should be aware that this article does not recommend companies, it merely gives opinions. I have only been a Fool for 2 years, but I'm beating the market when many people are down or out. Fool on Rick!

  • Report this Comment On August 31, 2009, at 4:34 PM, bonojopie wrote:

    Hey Fredlee009 the word is ounce you imbecile!

  • Report this Comment On September 01, 2009, at 1:11 PM, BullishBroker74 wrote:

    by Brandon Matthews

    On any given day, there are dozens of professional stock “bashers” trolling the stock message boards and posting erroneous information on Sirius XM Radio (SIRI). Perhaps that is where Jim Cramer, CNBC and the multitude of biased financial media get their information, so with that in mind I set out to dispel some of the myths surrounding the company, by explaining the reality of things like revenue, debt and EBITDA growth.

    Our first myth involves Sirius XM debt and the battle cry of the ignorant that it is somehow excessive. As the chart I’ve embed below indicates, Sirius XM debt stands at $3.89 billion. Compare that figure to Viacom (VIA.B) at $7.37 billon, Comcast (CMCSA) at $33.04 billion, Dish Network (DISH) at $5.13 billion, Time Warner Cable (TWC) at $22.93 billion, British Sky Broadcasting (BSY) at $4.46 billion or even Direct TV (DTV) at $5.79 billion and clearly Sirius XM Radio debt is anything but excessive. [click to enlarge]

    How many times have we heard the argument that Sirius XM Radio has too many shares outstanding? First of all, there is no such thing. A company’s value is not measured in outstanding shares but rather its market cap. Once a company achieves positive free cash flow and sufficient earnings, shares can be repurchased, and Sirius XM Radio has many years ahead of it in which to implement such a plan. There are some who question the potential market cap of Sirius XM Radio. The problem is that Sirius XM Radio suffers from an identity crisis. One analyst may value the company based on media stocks, while another labels the equity consumer discretionary, while still others like myself look at the company as a subscription service like cable operators.

    Sirius XM Radio has a current market cap of $2.69 billion dollars, and commanded a combined market cap of as much as 6 billion dollars just one year ago. Compare that figure to Viacom with a $15.27 billion market cap, Comcast with $45.08 billion and Direct TV with $24.37 billion, and clearly there remains plenty of upside potential to SIRI shares.

    Based on current valuations, Sirius XM is being lumped with companies such as Clear Channel (CCO) which commands a market cap of $2.5 billion as it faces the potential of bankruptcy in the not too distant future, and which derives almost all of its revenue from advertising. It is for this reason that Sirius XM Radio shares remain undervalued and explains why some retain their negative outlook on the stock. Sirius XM Radio would be fairly valued today at $1.30 – $1.50 per share based on its debt management and increased year end EBITDA projections.

    What about Sirius XM’s future potential? Of all the stocks mentioned above, I would like to direct your attention to revenue growth. Sirius XM’s revenue growth stands at 108%, dwarfing all of the competition, and analysts expect revenue to continue to grow over 60% in 2010. As my friend “Muscle13″ points out, it’s all about EBITDA growth. It is also the one metric that critics can point to in justification of their negative bias. Even with increased EBITDA guidance, Sirius XM still falls short of having earned a higher market cap than the 6 billion it should currently be valued at. As the chart shows, the market cap values of the other company’s mentioned far surpass that of Sirius XM based on EBITDA. That is changing to the positive however, as Standard & Poors research points out in their research report:

    (Sirius XM) Management recently issued post-merger financial targets for the next five years, with 2009 subscriber growth of 20.6 million reaching 28.4 million by 2013, revenue of $2.7 billion to $4.1 billion, adjusted EBITDA of over $300 million to $1.5 billion, and free cash flow of breakeven to $1.4 billion.

    Sirius XM management had provided 5 year guidance which offers the potential of Sirius XM shares rising to as much as $7.50 in the next 5 years, as long as management can deliver. Those projections put EBITDA at 5 times its current level. Simple math tells us that $1.50 x 5 = $7.50. That’s not a bad 5 year potential return on a .65 – .70 investment and certainly a justifiable long term price target that leaves out any outrageous multiples that a sector monopoly might warrant in the future.

    There is one more myth that is beginning to make its way around the web. That is a claim that Sirius XM will soon receive a delisting notice. That is false. They will soon receive a letter of non-compliance and have at least a full year to regain compliance.

    Position: Long SIRI

  • Report this Comment On September 01, 2009, at 6:42 PM, bigredonebigred wrote:

    5 year plan on a "radio" stock.

    I asked my two sons 16 and 17 years of age (both have their own cars) what they thought of Sirius Radio. "Is that the station with the hippie guy?" They could care less. Ipods, mp3s, net books (I'm the only one who still uses CDs,) doesn't seem to bode well for Siri.

    I will be amazed if the company or its business plan even exists in 5 years!

    Helped by more car sales???? The Cash for crap car program will "kill" the new car auto market for at least another 18-36 months. Drag out the pain..... Great idea morons! On the other hand you may be able to pick up some Ford for $3 in a few months. Or better yet short GM the month after their new IPO.

    My opinion...AS a "long term" investment SIRI a dead dog!

    However I do enjoy trading it from time to time.

    No SIRI position at present.

  • Report this Comment On September 02, 2009, at 1:01 PM, BullishBroker74 wrote:

    Relayed By Chris Stovall written By Brandon Matthews

    Senior media and entertainment analyst of Standard & Poor’s U.S. Equity Research Services Tuna Amobi has raised his price target on Sirius XM Radio (SIRI) shares to $1.00 from his previous target of $.50, while cutting his projected 2009 loss estimates in half and projecting a full year profit for Sirius XM Radio in 2010. All of this while maintaining its HOLD rating.

    “With recent signs of some auto OEM stabilization likely further outweighed by continued anemic retail trends, we see about 18.2M and 18.0M subscribers by ‘09 and ‘10 end, respectively (vs. ’08’s 19.0M), considering cash-for-clunkers and iPhone app. SIRI seems to have weathered near-term financing hurdles, though probably not fully dissipated. Factoring $750M of new senior notes (partly on refi), we narrowed ‘09 loss per share est by $0.08 to $0.08, see $0.01 EPS for ‘10 (vs. $0.06 loss), and we raise our EV/Sales target price by $0.50 to $1, noting $7B of net operating losses.”

    Mr. Amobi was one of the first analysts to go out on a limb and forecast a price increase from .34 to .50, which SIRI shares were able to reach months prior to Mr. Amobi’s 12 month prediction. With the industry’s foremost media analyst now predicting a $1.00 share price, Sirius XM Radio investors can perhaps breathe a little easier.

    Position: Long SIRI

  • Report this Comment On September 02, 2009, at 4:07 PM, skaizun wrote:

    No offense, but I hope your other 9,999 articles weren't as blatantly obvious or trite as this one! I can't believe you actually bought the stocks you listed, when the general consensus has been negative for years! How,exactly, are we supposed to get rich on which of your mistakes??? I can lose money without any help, thank you very much! ;)

  • Report this Comment On September 02, 2009, at 4:34 PM, stan8331 wrote:

    The point of this article - that consistently finding homeruns allows you to make a few strikeouts - is absolutely true. As far as Sirius goes, I think it is on the way back up and have a small long position I'm holding for the long-term. It's fine to criticize TMF for CURRENTLY bagging on SIRI - it's had a huge gain since the low and I believe there's a lot more upside to come. However, I fail to see how anyone in their right mind could claim that going long SIRI at $4.71 was a good investment. The writer is correct to criticize his November 2004 bullish call as a very bad selection.

  • Report this Comment On September 02, 2009, at 5:25 PM, Buckaneer wrote:

    i like that you say, "lucky enough" for a multi-bagger. so, after four losses, then it takes luck to recover? that is horrible! why even invest if that is the case? stupid.

  • Report this Comment On September 02, 2009, at 10:29 PM, georcole wrote:

    killab73- If you think the articles are that bad, please stop reading. You are only hurting yourself if you keep upsetting yourself by reading them. I personally enjoy most of them.

    I do not have any feelings on SIRI. The only time I thought about buying them was before they even had satelites up and they were trading under the ticker CDRD and were known as CD Radio. At the time, I watched it go from $7 to $75 and then down to $3. I never pulled the trigger and sometimes kicked myself for missing out on a ten-bagger but, I am glad that I didn't ride it down to the bottom either. I do agree that TMF does seem rather down on the stock. Rick mentioned five years ago being bullish on SIRI and being very wrong about that, and over half of the comments have been bashing him for being bearish on them now. Has anybody noticed that SIRI only makes up a small part of this article, yet it makes up such a large part of the comments?

    Investing is a gamble. All you can do is research, buy, and hope. I know that if you investigate a company thoroughly and everything looks good, sometimes the stock goes nowhere. Other times a stock looks like garbage and it becomes a multi-bagger. So people may be "experts" when it comes to investing but, nobody is perfect because not every stock reacts the way you think it will. And that gets back to the whole point of the article - that some good picks can outweigh some bad ones if you are lucky enough. Fool on.

  • Report this Comment On September 03, 2009, at 2:22 PM, THEMATHISNEAR wrote:

    Hey, Rick, kudos to you for admitting mistakes and being willing to take the criticism. It's a lot easier when you're sitting on profits, so let the complainers have their fun. I hope you're still holding Tivo, as it's getting ready for its next leg up with the sanctions ruling.

  • Report this Comment On September 04, 2009, at 1:10 PM, TMFBent wrote:

    "there are dozens of professional stock “bashers” trolling the stock message boards and posting erroneous information on Sirius XM Radio (SIRI). "

    There is no such thing as a "professional stock basher." The famous "I was a paid basher" post that led to this classic fiction is an admitted hoax, yet people who are too attached to junk companies repeat it over and over again.

  • Report this Comment On September 04, 2009, at 8:47 PM, MikeDeAnaranjado wrote:

    I think this is a great column! *If* you read between the lines, that is. Pick out a few of the paragraphs that don't mention specific stocks, and you extract a sound investment philosophy that also applies to life outside your portfolio.

    Am I on to something or just blowing smoke???

    _____

    "Baseball purists know that Hank Aaron hit 755 homers in his illustrious 23-season career. Few will tell you that he also struck out 1,383 times. He failed more often than not in touching all the bases. Do fans care? No. In one powerful swing, Aaron could change the course of a ball game.

    "Investing is the same way. It's not about the misses. It's about the slugging percentages.

    "If you're lucky enough to snag a five-bagger, it gives you the flexibility to strike out four other times.

    "In the end, our scorecard is smoking the market… because we're able to hit it out of the park from time to time. A fistful of winners can be more powerful than a bucketful of losers.

    "So bring on my next mistake. And the one after that. You don't have to get it right every time. All you have to do is make sure that when you're right, you're *really* right."

  • Report this Comment On September 05, 2009, at 10:14 AM, HixNixStixFlix wrote:

    My conclusion with Fool and others like them is that I really must invest in Nearly Everything that they might Suggest. Only then would their suggestions be accurate. Rick's article reminds me that in order to be successful following Fool's (or any other's) suggestions, that I gotta have enough cash to invest substantially in Every investment that they may suggest - because neither they nor I know which ones will 'strike out' and ones will 'go yard'. Even the blind squirrel can find a nut - sometimes he finds it right away - sometimes he spends all day.

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