Not all wisdom comes from on high -- or whatever elevation those of us who comment on stocks might think we occupy.
I was reminded of this recently when I checked in with Motley Fool Hidden Gems pick RedEnvelope (NASDAQ:REDE). While the official newsletter scorecard lists it as only a 40% gain, there are happy posters on the Fool message boards who proudly list the stock as their first double. I also happen to know that there are plenty of shareholders -- I'm one of them -- who got in closer to $14 and $15 a stub and are showing a much slimmer gain. Why the wide range of returns? One word: Volatility.
RedEnvelope was not a firm without problems, real and perceived. Many wondered why it wouldn't just get creamed by Overstock.com (NASDAQ:OSTK) or Amazon.com (NASDAQ:AMZN). Personally, I thought it was kind of a goofy Internet Tiffany (NYSE:TIF) wanna-be. Most of the products repulsed me.
I bought shares anyway, since I liked the concept and I figured my tastes aren't necessarily indicative of general consumer sentiment -- in fact, they're probably a contrary indicator. The firm struggled with major fulfillment troubles and then a shareholder mutiny.
But many of us who kept our eyes on the core business saw no reason to bail out, even though we were down as much as 50% over the past year. To me, and others, the major problems always looked like things that could be fixed. I only wish I'd had as much "intestinal fortitude," as our high school gym teacher used to call it, as the folks who were buying at $9 and below.
The lessons are clear. First, scorecards are troublesome beasts. Useful, yes, but they don't accurately reflect the returns that can be earned by careful investors. Buy, hold, keep your eye on the business, and, I would add, be brave enough to zig when the market is zagging. It won't guarantee a home run every time, but by finding businesses with good odds of success and showing courage when everyone else is running scared, you'll do a lot better than the legions of trend-followers.
For related Foolishness:
- Heat up an eggnog for RedEnvelope's merry Christmas.
- There were early hints that RedEnvelope would be sending investors something nice.
- Before that, there was panic.
Seth Jayson has learned to love plenty of companies that sell products he hates. At the time of publication, he had shares of RedEnvelope, but no position in any other company mentioned. View his stock holdings and Fool profile here. Fool rules are here.
