This article's salacious headline might smack of exaggeration -- but believe it or not, it's true.
How it happened
Picture it: New Jersey, 1995. Though not yet a Fool employee, I was an avid reader of the Fool's online site -- perhaps like you. The Fool's founding brothers, David and Tom Gardner, were occasionally recommending stocks, and one of their recommendations was an online service provider called America Online.
I was still quite new to investing, and I didn't know enough to do much of my own research. But at least I had one thing going for me: I was an AOL customer. I used the service every day, and I liked what I saw of its user-friendliness, usefulness, and potential. So I bought. I snapped up $3,000 worth of shares and hung on.
Over the following years, the stock would go up and down, sometimes significantly, but I kept holding on. Overall, it mainly went up, and it split and split. I remember checking my portfolio regularly -- several times a day! -- to see how rich I was becoming. I think that near the stock's peak, I was in possession of a 70-bagger! My $3,000 investment had become worth $210,000. If it doubled in value only two more times, I'd be (almost) a millionaire! All from a measly $3,000 investment.
Did I sell shares along the ride up? No. Did I sell at least some near the top, when my mom told me to? Nope. (That strange thudding sound you hear is me kicking myself.) I kept holding on. AOL merged with Time Warner in 2001, and ever since then, the stock has struggled. I remember when the shares were priced in the $70s, but it's a fuzzy memory. They've been below $20 for around four years now. I did sell a big chunk of my shares -- in the teens -- when I needed money for a down payment on my house. And I finally got smart and sold some shares to diversify into some other stocks, instead of holding such a big chunk of my net worth in a company in which I no longer had the most faith.
I still hold some shares, though, and despite my inclination to curse my stupidity for not selling earlier, I'm still sitting on a handsome profit, even at current levels. My cost basis is ridiculously low, and this has still been one of my best investments ever. I really shouldn't complain.
How you can do it
If any of this story appeals to you, know that you have a chance to make it yours -- perhaps with an even happier ending -- if you make a few decisions differently:
- First, pay attention to products and services you know, use, and love -- especially if you see more and more people using them. There may a great stock behind them, whether they're big or small companies. Years ago, a few now-wealthy investors noticed that a coffee vendor named Starbucks
(NASDAQ:SBUX)was starting to spread out. And some early users of eBay's (NASDAQ:EBAY)service probably saw the financial potential of the company long before you and I did. If you bought into eBay just three years ago, you'd have doubled your money, and if you bought into Starbucks some seven years ago, not long after it went public, you'd have quadrupled your moola. Plenty of well-known companies have done phenomenally well over the last decade or two. Do you have Jos. A. Bank (NASDAQ:JOSB)duds hanging in your closet? Are those some Nike (NYSE:NKE)sneakers on your feet? Are you enrolled in any online courses at Apollo Group's (NASDAQ:APOL)University of Phoenix? Well, Jos. A. Bank has been one of the best stocks of the last decade, appreciating by nearly 4,000% from 1996 to 2005. Nike shares have increased in value nearly 12-fold over the last 15 years. And Apollo Group shares are up roughly 25-fold over the last 11 years. These companies have performed spectacularly right under our noses.
- Along those same lines, be wary of what you don't understand. If you don't understand a business, you probably won't be able to understand when business is going badly.
- If you buy into a company hoping that it will be a multibagger for you, buy to hold. As long as you have faith in the company's future, it's often best to just hang on, despite inevitable hiccups. Don't let some naysayers in the media get you out of a stock because of short-term concerns if you still have long-term confidence. Consider Coca-Cola
(NYSE:KO)or Pfizer (NYSE:PFE). Both stocks have earned incredible returns for early investors, and many still have high expectations for the companies' future performance, but both stocks have been flat or worse for the last few years.
This isn't to say that these companies are necessarily great buys going forward, but their histories demonstrate that as long as you get in early and hold on, the market can work wonders for you. Stocks are dynamic, and you're likely to lose more money trying to time them than you are just sitting tight, as long as you've picked solid winners.
Do consider selling at least some of your shares if they rise to levels you can't justify. That was my main mistake -- irrationally and greedily hoping to get even richer. If a stock is trading for more than you know in your heart that it's worth, and you still hang on, you're no longer investing -- you're speculating, at great risk.
- Finally, consider checking out the stocks that David and Tom Gardner are recommending now. Their Motley Fool Stock Advisor newsletter service, launched in April 2002, offers two picks (and two investing styles) each month. On average, their recommendations are up 60%, vs. 20% for like amounts invested in the S&P 500.
They have a few losers, of course, but these two picks show just how fast your money can grow. You can try Stock Advisorfree for 30 days -- and you'll have full access to past recommendations.
Here's to big profits in your future!
This article was originally published on Feb. 2, 2006. It has been updated.
Selena Maranjian owns shares of eBay, Time Warner, Pfizer, Wal-Mart, Coca-Cola, and Dell. Time Warner, Starbucks, and eBay are Stock Advisor picks. Pfizer and Wal-Mart are Inside Value picks. The Motley Fool isFools writing for Fools.