200 Stock Advisor Picks, 6 Conclusions, No. 2: "Your Real Biggest Losers Aren't the Obvious Ones"

Journey in your mind back to March 2002. The stock market was still stumbling around in the aftermath of the dot-com crash, and retail investors were running scared. It was in that environment that Tom and David Gardner launched a monthly newsletter featuring one stock pick from each brother, with detailed explanations about why they'd been chosen -- a friendly fraternal competition that became the foundation of the Stock Advisor portfolio. The returns on those investments have well outpaced the broader market's gains in the ensuing 16 years. Had you acted on all of their recommendations, you'd have reaped a market-smashing 1,955% return overall.

Profit, however, isn't the only thing the Gardners have accrued in the intervening years. They've also figured a few things out along the way. So in this Rule Breaker Investing podcast, David Gardner shares six interesting conclusions from his 200 months selecting recommendations for Stock Advisor.

In this segment, he runs through the 10 worst stocks picks he's made. But more tellingly, he explains us what his actual worst investment move was -- because it isn't one of the ones on that first list.

A full transcript follows the video.

This video was recorded on Oct. 17, 2018.

David Gardner: Conclusion No. 2: "Understand your real biggest losers." That is Conclusion No. 2. We're going to reflect a little bit on losing.

I want to share with you my 10 worst stock picks in Motley Fool Stock Advisor history. So people who take pleasure at other's damage -- people who love schadenfreude or enjoy the explosions that they get to see [things blowing up in action movies] -- get ready, because I'm about to please you.

Here are the 10 worst stock picks I've ever made in Motley Fool Stock Advisor history. Really quickly, the tenth worst ever: FireEye down 68%. That is an active, ongoing recommendation today.

Ninth worst is Electronic Arts. Somehow I took a great company, which is what Electronic Arts is, and I completely mistimed my buy in June of 2005 and my sell in December of 2010 and lost 72%.

Atwood Oceanics down 74%.

The Container Store Group, which I recommended and then rerecommended and I'm really sorry about that, because over the three years from 2013 to 2016, The Container Store lost respectively 83.5% and 86.6%; so yes, those were my sixth and seventh biggest losers.

My fifth biggest loser was Westport Fuel Systems. Today WPRT, the ticker symbol, down 88%. By the way, every one of these is horrific on its own. I mean, any one of these, many investors live in fear of that every happening in your portfolio [to lose 70% or more], but unfortunately, my fellow Fools, it gets even worse, because Clean Energy Fuels, which remains an active pick today for Motley Fool Stock Advisor members on my side, is down 88.7%.

And slightly worse than that, my third worst pick ever, Krispy Kreme Doughnuts. Somehow I managed to take a fine American brand, and a product that I personally enjoy, and I managed [and I apologize for all of these], to have my Stock Advisor followers buy it in August of 2003 and then we sold it in October of 2005, about two years later. We lost 89.7%. There was some fraud going on back then, which I don't have time to talk about now, but that's part of the reason Krispy Kreme did so badly.

My two worst picks of all time -- Seadrill, down 92.7% from February 2012 to October of 2016. You're noticing many of these we didn't hold for 15 or 11 years. You're seeing me hold these for three or four years and then just giving up; sometimes doing well to do so and others not so much.

And then my worst pick ever: Satyam Computer [Services]. Another fraud, I'm sorry to say. The India-based software developer outsourcing to many of the Fortune 500 at the time. Unfortunately that company was a fraud and lost 94% of its value from just May 2007 to January 2009.

So that's the really bad news. Those are my 10 worst picks. I've had a lot of other losers, too, but I like to share with you me at my very worst for two reasons. The first is how often do you see anybody do this on CNBC, or in The Wall Street Journal, or in Barron's? Rarely do I see professionals talking about how badly they've screwed up.

We've always said at The Motley Fool, "I'm not the only one." This is just me as one of many Fools that we like to lead with our bad picks. Lead with your loser. Always share a loser. Make sure you're sharing a lesson. So it is my pleasure -- my horrific pleasure -- to share that list of 10 stocks with you.

But Conclusion No. 2 was entitled "understand your real biggest losers" and here's an important point. Because if you do the math, my real biggest loser I haven't even mentioned yet. If you imagine $1,000 or $10,000 being put in each of these... Let's just go with $10,000. Well, if it loses 90%, how much are you left with? The answer is you're left with about $1,000. From $10,000 you're down to $1,000. You lost $9,000.

But the real biggest loser for you, if you're an investor and if you've been acting over the long term, I bet you realize that it's not the bad-performing stocks. It's the megawinners that you sold too early. It's that you didn't stick with big winners and I'm going to share the math with you to make it obvious in a second.

Because my real biggest loser was a company called ARM Holdings. The ticker symbol was ARMH. This is a British-based company that did R&D for the chip industry, so a lot of semiconductor companies would use their research in order to design better, faster, cheaper chips. ARM Holdings, history will show, I recommended in October of 2003, so 15 years ago, this month, at $5. I then rerecommended it two months later when it had crossed $6. That was in December of 2003.

Well, fast forward to June of 2009. So almost six years later the stock was languishing. It was at a dividend-adjusted closing price when I sold it, of $5.38. So I paid $5 for it six years before. I then added some at $6 and I'm sitting there. The year 2009 was not a good time. I was probably really sad at the time about how badly the stock market had done. I looked at ARM Holdings, a double recommendation for me, and it was at $5.38 and I said to all my Stock Advisor followers, listeners, and members to sell. We're out.

Here's why ARM Holdings is my real biggest loser. Because when the company finally got bought out in September of 2016 the share price that day was at $67.77. So two different positions from $5 and $6 would both have been 11-plus baggers. And if you do the math on a $10,000 investment, you'll see very quickly that I passed up literally hundreds of thousands of dollars in that one mistake; and my worst pick ever, Satyam, from a $10,000 start we lost about $9,500.

So you can see it's not even close what your real biggest loser is. If you ever have had a wonderful winner in your portfolio and you sold it too early, that is by far a more criminal act on your portfolio. You're doing far more abusive damage to your own financial future than if you pick a really bad stock and watch it lose most of its value. Conclusion No. 2 -- understand your real biggest losers.

Conclusion No. 3. And before I get to Conclusion No. 3 let me just point out that I'm hoping you'll find these increasingly interesting. You heard me with, "We've done really well, you have, too." Weren't you even more interested to think about what your real biggest loser is? Well, that was No. 2. Here's No. 3.