In the characters of Dr. Jekyll and Mr. Hyde, author Robert Louis Stevenson metaphorically showed that within us all lies both the reasoned, calculating mind, and the destructive, emotional animal. Our Mr. Hyde side can ruin our investment plans if given the opportunity. All of the analytical work in the world won't save our portfolios if we let the urge to buy and sell on impulse dominate our personalities.
Take a page from my book, as I relate two of my own recent investing horror stories.
The first involves Motley Fool Hidden Gems selection Middleby (Nasdaq: MIDD). This food service equipment provider has rewarded subscribers generously, returning more than 375% since it was first recommended in the newsletter in late 2003. The S&P 500 returned only 34.4% during that same time frame. This may not look frightening on the surface, but it once was for me.
I may be the only Hidden Gems subscriber to have lost money on Middleby. I bought this stock in late February 2005 and then watched it lose roughly 18% of its value over the next couple of months. So, of course, I panicked. I questioned my investment hypothesis, fretted over recent debt levels the company had taken on, and so on. This company became the monster in the closet of my portfolio. I sold and locked in that loss. If I look at the price chart of this company now, the dip that looked so daunting to me at the time barely registers as a speed bump on the path to superior returns. Mr. Hyde had gotten the better of me.
The second horror story involved Income Investor recommendation Annaly Capital Management
The damage had already been done, and an important lesson learned, regarding the correlation between yield curves and mortgage REITs. Rather than selling, I decided to add to shares of this quality company during its time of woe. I am still down overall in this holding, but over the past 12 months, it has returned more than 22% for me, including dividends.
You don't have to let Mr. Hyde loom over your investments. I've found that The Motley Fool's message boards can act as a very effective support group -- a security blanket for my investor's psyche, if you will. CAPS is another great place to gain insight on fellow investors' opinions of individual stocks, and it provides a safe place to explore an investment thesis. Mr. Hyde may still rear his ugly head from time to time -- but now I know how to reach for the light switch, and chase that spirit away.
Fool contributor Ralph Casale still checks under the bed before he invests. He owns shares in Annaly Capital Management, but holds no present financial position in any other firm mentioned. The Motley Fool has a disclosure policy.
The Motley Ghoul's Tricks or Treats represents the opinions of each Fool only and should in no way be taken as the opinion of either The Motley Fool, Inc., or any company in question, or as representative of anyone or anything other than that specific Fool's thoughts. So do your homework, and review The Motley Fool's disclosure policy .