I began my investing journey in August 2007 with a few hundred dollars and big dreams. I was already convinced that the stock market was a far more effective vehicle for achieving financial independence than simply socking away cash in a savings account -- though I'm also a firm believer in a well-funded emergency fund.
After establishing a brokerage account and having my first monthly installment transferred, I was ready to buy my first stock. I had $250 in my account, which was all I could afford at the time. I poured over a list of stocks recommended by The Motley Fool and settled on my very first investment: Netflix (NFLX -0.74%). My discount brokerage allowed the purchase of fractional shares, so I spent the entire $250 on Netflix stock, and after the $4 commission, I was the proud owner of 14.385 shares.
And with that first purchase, my investing education began in earnest.
Image source: Getty Images.
A bit of context
Eagle-eyed observers will note that my plunge into stock ownership came at a perilous time for investors. Just months later marked the beginning of the Great Recession, one of the worst downturns in stock market history. After hitting an all-time high just two months after my first investment, the S&P 500 index began a decline that played out over 17 months before finally hitting a bottom in March 2009 and shedding more than 56% of its value.
I purchased a good many stocks during the downturn, and frankly, most of them took a beating. However, Netflix was among my best performers, as a growing cadre of viewers sought to escape the economic storm by turning to the company's seemingly endless viewing options.
Despite enduring one of the worst market environments in history, my Netflix stock now had gained an impressive 144%.
A costly lesson
At the time, many investors -- who I believed were smarter than I was -- touted the importance of protecting your capital. At this point, Netflix had grown to represent nearly 20% of my total portfolio, even though I owned stocks in 24 different companies. The common narrative suggested that I shouldn't let any one investment dominate my portfolio and that some "profit-taking" was in order. By selling off a chunk of my Netflix holdings, I could recoup my original investment, and from there on, I'd be playing with "house money."
Bending to the conventional wisdom, I sold 10 shares of Netflix stock, which were worth $41.65 each by late March 2009. The stock was up 144%, and I pocketed gains of roughly $245, and I patted myself on the back for such a savvy and profitable investing move.
You can probably guess where I'm going with this.
Netflix shares were selling for roughly $636 as of the market close on Friday. Let's not forget that Netflix conducted a 7-for-1 stock split in mid-2015, so the 10 shares I sold would have increased to 70 shares. At roughly $636, those 70 shares would be worth more than $44,000, a far cry from the $245 I pocketed in 2009.
Learning from my mistake
While this rookie mistake cost me $44,000, I learned an extremely valuable investing lesson: I generally resist profit-taking in all its forms and hold for the long term. I let my winning investments run unless something drastically changes regarding the investing thesis.
That's not to say I don't occasionally sell. I do. I have trimmed some investments to buy a car and pay off my student loans. But I don't sell merely because a stock has notched impressive gains -- and I never sell based on valuation alone.
That lesson, and buying with the intention of holding for years -- if not decades -- has yielded me many winning investments. These gains are as of the market close on Friday:
- Netflix (I still hold those remaining shares) up 25,942%.
- Mercadolibre up 6,859%.
- Chipotle up 6,379%.
- Tesla 4,246%.
- Intuitive Surgical 3,597%.
- Apple 2,940%.
There are many more, but you get the point. I've owned each of the positions for at least 14 years, and I've added to many of them numerous times over -- making my winners even bigger winners.
While selling my Netflix shares too soon was my most costly investing lesson, learning from it allowed me to reap the benefits of holding subsequent stock positions for the long term.
