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. 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 a few shares to diversify into some other stocks, instead of holding such a big portion 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 be great stocks behind them. Plenty of well-known companies have done phenomenally well over the past decade or two.
Do you use Yahoo! (NASDAQ:YHOO) for email and shopping? Do you fill your car up at your local ExxonMobil (NYSE:XOM) station regularly, shop for groceries at Safeway (NYSE:SWY), and bank with Wachovia (NYSE:WB)? Yahoo! shares have gained nearly 4,500% in the past decade (or 46% annually), despite that big stock-market hiccup a few years ago. Over the past 20 years, ExxonMobil stock has gained some 15% per year, on average, trouncing most mutual funds, while Safeway has earned 11% over those same 20 years, and Wachovia has achieved that feat over the past 15 years. These companies have performed rather well, 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. If you still have long-term confidence, don't let some naysayers in the media get you out of a stock because of short-term concerns. Consider Merck (NYSE:MRK) and Washington Post (NYSE:WPO). 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 past 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.
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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 Advisor for free -- 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 Time Warner and Washington Post. Time Warner is a Stock Advisor recommendation. Merck is an Income Investor recommendation. The Motley Fool isFools writing for Fools.
