Please ensure Javascript is enabled for purposes of website accessibility

The Market Forgives a Lot of Mistakes

By Taylor Carmichael, Travis Hoium, and Jason Hall – Updated Nov 3, 2021 at 9:21AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

You can be wrong on a lot of your stock picks and still outperform the market. All it takes is a few massive winners that win over and over again for a decade or more.

On this episode of "The 5," recorded on Oct. 21, a trio of Fool contributors talk about their worst investments ever. But first they talk about a fundamental truth of the stock market, and that's the power of compound returns. You can have just a few winners that have massive outperformance. If you have a few 30-baggers in your portfolio, you can and will forget about all those stocks that drop 50% or more.  

10 stocks we like better than Walmart
When our award-winning analyst team has an investing tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now… and Walmart wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

Stock Advisor returns as of 6/15/21

Jason Hall: We're going to talk about some of our worst stock moves ever. Before we do that though, there's a couple of comments that I want to hit. There's one in particular. It's from Vihan. Vihan says, "Taylor Carmichael, I love your energy and conviction when you articulate confidence in a business as if it's one cannot go wrong with this investment." Taylor, I want to say hi too, love your energy and conviction, it's always fun having you on the show, and I'm glad you're playing with us. You're muted. We're not getting your verbal energy.

Taylor Carmichael: I would just caution you. I'm confident. My dad says I'm often wrong, but never in doubt. [LAUGHTER] I'm afraid that's a bit true. If you look at my CAPS score, again, play CAPS, you will see I'm wrong a good deal of the time, and it's just the way that I play. I buy risky stocks. David Gardner is the same way. His accuracy is 60%, my accuracy is actually 57%.

Hall: That's pretty good. [OVERLAPPING] There's the cool thing about stock investing, right? Acknowledge the fact that you are going to be wrong a lot, but it's one of those things where you can be right, and you can also be really, really, really, really right.

Carmichael: That's what CAPS--

Hall: [OVERLAPPING] Being really, really right one time takes care of 10 times being wrong. It's incredible.

Carmichael: It's the magic of compound interest, and that's how you do it. You have those few winners that just dominate, and just shock you with how well they do. Every time I buy a stock, I believe in it. Every time I'm like, I love it, it's going to go great. Some of them are not, and I never know which ones are not. If I did, I'd be a 100%. I never know which ones I'm wrong about. I'm wrong about something, I don't know which.

Hall: But we've got an example to bring us home here. Taylor, kick us off here. What's your worst stock move ever?

Carmichael: Yeah, that's going to shake everybody's confidence in me now. I sold Netflix to buy Crocs. Those shoes, the ugly shoes.

Hall: The company not the actual shoes?

Carmichael: Yeah. That's true, [LAUGHTER] the stock and the company. It's just as bad as buying the shoes. The shoes that no woman wants you to wear. They're very comfortable shoes. I like the shoes. It's like leaving a million dollars on the bus. I did that. [LAUGHTER]

Hall: These are your Crocs right here?

Carmichael: Yeah.

Hall: Got them. Travis, how about you?.

Hoium: They look good, Jason. I once shorted Amazon. [LAUGHTER] It didn't last long. I lost a little bit of money, I learned a lesson. In the grand scheme of things, it was a pretty inexpensive lesson, but it was a decade ago at this point. I had a hard time understanding a company that did not make any money at that point and seeing what the future was. Jeff Bezos obviously proved me wrong.

Jason Hall: There we go. Well, it's good that that's a lesson you learned quickly, and self-corrected on that one. I was going to say Ultra Petroleum, this is a natural gas producer, and I was just in love with their low-cost production, and I just completely ignored the fact that there's an entire lack of infrastructure into where they connected, no Kinder Morgan to help them monetize that asset and those costs, and a lot of other areas along the way, the company ended up going bankrupt. But really the one that I want to talk about is Netflix, too, because sometimes these mistakes are actually mistakes that were good. This is roughly the day that I sold almost all of my Netflix stake. This is what the stock did after that. Yeah, that's a 60, 68 bagger. Here's the thing. Here's why I'm not upset with it. I sold it intentionally to use those proceeds for the down-payment of the first house that we ever bought. Why I bought it to begin with? I bought it to do something to improve the quality of my life with, and it's worked out just fine.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Travis Hoium has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Kinder Morgan, and Netflix. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.