When it comes to investing, nobody gets it right 100% of the time. Even Warren Buffett -- arguably the world's greatest living investor -- has made a few mistakes in his stock-picking career.
What matters most when you make a pick that doesn't work out as you might have hoped is that you are able to recover from it. That requires both learning from your mistakes and limiting your exposure to keep those mistakes from torpedoing your entire financial position when you're buying the stock in the first place.
With that in mind, three Motley Fool contributors looked through their portfolios for investments that hadn't quite worked out as well as they had hoped. They came up with WeWork (WE), Kinder Morgan (KMI -0.64%), and Zoom Video Communications (ZM 1.57%). Read on to find out why and to learn from their mistakes so you don't have to make the same ones yourself.
Image source: Getty Images.
WeFlopped
Eric Volkman (WeWork): With the coronavirus pandemic over and a planet's worth of employees negotiating new hybrid work arrangements, I thought it'd be a good idea to buy into WeWork just after its October 2021 initial public offering. After all, there's a new office paradigm, right? Surely there's space for a happy medium like WeWork, with its midterm leasing arrangements.
These days, I'm glad I only bought a modest stake of 100 shares; this stock has been a dog. WeWork still hasn't escaped its legacy as a massively overbuilt and overhyped entity with far too big a footprint (at one point, near my home in Los Angeles, there were at least three WeWorks I could have driven to within 15 minutes).
Someone's got to pay for all that space, and that someone is WeWork -- which, some might not realize, is only a lessor of its properties and not the owner. So it's little wonder the company's debt is so high; at the end of its most recently reported quarter, total long-term indebtedness stood at more than $18 billion.
Meanwhile, WeWork booked slightly over $3.2 billion in revenue for all of 2022. That year, the company paid $516 million in interest expenses alone. In other words, $0.16 of every dollar it made went toward that massive debt monkey on its back.
We're now quite some time past the scary months of the pandemic, and people just don't seem to be flocking to WeWork. In the company's most recent (first quarter) earnings report, occupancy actually fell sequentially to 73% from 75%. A sprawling network of buildings with more than one-quarter of its offices vacant isn't going to make anyone rich.
I'm holding on to WeWork, at least for the moment, as it's a relatively small position and a third-party office rental trend might ultimately materialize. Still, I'm pretty glad I didn't plonk down more money on that gamble.
A solid company with limited growth potential
Chuck Saletta (Kinder Morgan): As much as I appreciate the high likelihood that Kinder Morgan will be able to deliver energy -- and dividends -- for decades to come, I'm glad I stopped buying new shares when I did. There was a time when the company offered a balance of current income and a decent rate of potential income growth, and it was during that window when I was actively buying new shares.
These days, the political opposition to energy pipeline expansion has reached the point where it's very difficult to expand even existing pipelines, much less build brand-new capacity. Those exceptional challenges to expansion put a massive damper on Kinder Morgan's growth potential, showing up as an incredibly slow dividend growth rate.
In 2023, for instance, its quarterly dividend increased by $0.005, from $0.2775 to $0.2825 per share. That's after a $0.0075 increase from $0.27 in 2022 and a similar $0.0075 increase from $0.2625 in 2021. So not only have the recent increases been mere fractions of a penny, but they're also decelerating over time. That combination paints a very clear picture that Kinder Morgan does not expect much growth.
With a yield of around 6.6% and almost no growth prospects in the near term, the company's shares aren't likely to show much short-term appreciation unless interest rates drop back to zero. Over the longer haul, however, there's a case to be made that the political winds may shift the other way, once again welcoming capacity expansion.
After all, the Energy Information Administration forecasts that even under optimistic scenarios for renewable energy, the demand for oil and natural gas will remain steady at least through 2050. Also, despite the current push for renewables, U.S. natural gas production hit a record high in 2022, and oil production is forecast to hit one in 2023.
Pipelines tend to be among the safer, lower-cost, and more environmentally responsible ways to transport those types of energy. As a result, there's a clear case to be made for them as a "lesser of available evils" in a world where fossil fuels aren't likely to disappear anytime soon. It's within that framework that I'm still willing to hold my existing shares, even though I'm not actively buying new ones.
Lesson learned
Jason Hall (Zoom): Back in 2020, a lot of people were convinced that Zoom's future was incredibly bright. In the throes of the Coronavirus pandemic, Zoom rapidly became the go-to service for people to work, attend school, interact with friends and family, and so much more. At its peak, Zoom's market capitalization was nearly $160 billion. Today, it has fallen below $20 billion, almost 90% down from the peak.
Admittedly, I was one of the bulls who saw very big things for Zoom, even making the call that it could eventually become a trillion-dollar company in the next 10 or 15 years. Needless to say, I have been pretty wrong about that so far. The shares I bought in February of 2021 are down 85%. Fortunately, I didn't match my -- somewhat overoptimistic -- conviction with dollars, taking a tiny starter position in the company instead.
Ironically, I continue to believe that Zoom has a pretty bright future ahead of it. Growth rates have certainly slowed, but Zoom generated 67% more revenue over the past year than in 2020, has actually improved its gross margin, and continues to generate strong free cash flow.
As a result, it's back on my watchlist. Trading for about 18 times free cash flow and with $5.6 billion in cash and no debt, Zoom is becoming more compelling with an expanding collection of sticky, enterprise-focused communications services. I'm not quite ready to buy just yet, but I'm not letting my prior mistake cause me to miss a potential opportunity.
Make now the time to take action for yourself
Whether or not you own shares of WeWork, Kinder Morgan, or Zoom, you likely have at least one investment that hasn't performed to your expectations. Make today the day you take a cold, hard look at that investment and decide for yourself whether it's one you're willing to keep holding on to or it's time to part ways. Once you're comfortable learning from your mistakes and moving on when it makes sense, you'll likely find it much easier to adapt to whatever the market and your investments throw your way.
