In a popular Fool piece reprised just this week, Paul Elliott posed the hypothetical question, "What if I'd never sold a stock?" He refused to perform the calculation, however, as he expected the results to be too gut-wrenching. There is plenty of additional anecdotal evidence out there about the regrets of master investors who wish they'd invested more like Tony Soprano and never sold.
Well, being a glutton for punishment, I'll take the idea a step further and reveal five stocks that I sold last year. I only began investing in individual stocks in the summer of 2005, so these were all relatively short-term holdings. We'll look at the gains or losses I realized on those sales and compare them to the hypothetical unrealized gain or loss I would be sitting on right now if I'd never sold. Don't worry; I've removed the sharp objects from my desk.
This exercise in humility is directed especially at Fool newbies, though I imagine there are plenty of veterans reading this piece who have mentally blocked out their own boneheaded stock sales of years past. It can be painful to face your investing mistakes, but it's critical to one's investing education. And we Fools are here to educate!
Without further ado, here are five stocks to which I've said adieu:
|
Company |
Purchase Price |
Sale Price |
Gain/(Loss) |
Gain/(Loss) If Held |
|---|---|---|---|---|
|
Hewitt Associates |
26.15 |
20.78 |
(20.5%) |
12.7% |
|
Timberland |
32.69 |
26.80 |
(18.0%) |
(20.1%) |
|
Akamai Technologies |
14.65 |
37.71* |
157.4% |
237.3% |
|
Telestone Technologies |
5.00 |
3.95 |
(21.0%) |
67.0% |
|
PW Eagle |
28.20 |
27.38 |
(2.9%) |
16.2% |
Wow, I sure dodged a bullet by avoiding that extra 2% cliff drop in Timberland shares! The PW Eagle sale was a stop-loss order which kept me out of about 10 points of upside over the subsequent two-week period. I don't use stop-loss orders anymore. As for the others, in each case there was a thought process that seemed rational at the time -- inventories are too high, valuation is getting out of whack, contracts aren't being priced correctly. Let's just say my short-term concerns have since been shown to be somewhat overblown.
I managed to pick some pretty decent stocks as a rookie, and I absolutely killed my returns by selling too soon. You think this table is ugly now? How about in 10 years? 40 years?! ... It's OK, I'm calm, everything's cool.
You know what? I didn't even include my brokerage commissions in the table above. I should mention that my broker doubled his commission revenue when I sold, while I blithely sullied my nest instead of slowly growing my nest egg. So, do you want to make money for yourself, or for your broker? Find a good discount broker with low commissions at the Fool's Broker Center, and pull the trigger sparingly!
I sincerely hope that this article chastens at least a few brash young investors out there with a mouse constantly hovering over that sell button. Short-termism is no way to play it, Fool. In the long run, Ben Graham has taught us that the market is a weighing machine, so buy great stocks at bargain prices, hold, and hold some more! The scales will ultimately tip in your favor.
Related articles:
Philip Durell's Motley Fool Inside Value newsletter is in it for the long haul. The service has beaten the S&P 500 every quarter since inception, and it's just in the early innings. To see if value investing is right for you, try out a free 30-day subscription.
Fool contributor Toby Shute is a recovering short-termist. He's doing much better now, thanks. He no longer owns shares in any of the stocks mentioned, and there's no need to rub it in. Akamai is a Rule Breakers pick. The Fool has a long-term disclosure policy.
