During breakfast at our favorite hole-in-the-wall restaurant, my wife asked what I was writing next on my blog. I said, “A series of articles you don’t want to read – our stock losses.” Her comment was optimistic when she said, “I lived it. But those losses allowed us to finally see how not to do it.” What a great woman!
Our approach now is to build wealth, which takes patience, persistence, and consistency. It was not something that interested me when I was young and stupid. So I kept swinging for the fences even though I had no chance.
I was crushed by buying cheap companies and stupid trading instruments (i.e. TZA). These are lessons I’m passing to my daughters and they’ll likely retire at an earlier age than my 62 if they listen.
Could’ve, Would’ve, Should’ve
In that same breakfast conversation with me wife this morning, she knew of our stock losses but she soon learned more. It was at this point that I told her about NVIDIA (NVDA), Bank of America (BAC), and Visa (V). This morning, she found out just what buy and hold could have done if we hung onto these 3 stocks.
Nvidia (NVDA) – Lost Gain of $180,000+
On August 9, 2010, I actually purchased this strong growth stock. The financial crisis had knocked it down from about $38 to my purchase price of $9.50. It had lots of cash, no debt, strong technology, a bright future so I bought 1,000 shares for $9,500. This was the kind of growth company you want to find but in my trading, short-term wisdom I sold it on 8/26/10 (just 17 days later). My selling of this company netted me a profit of $455. YES! Victory! I’m a genius!
Today, it’s valued at approximately $190 per share. If I hadn’t sold (my new approach), I could be holding this stock valued at $190,000 with a gain (not including dividends) of $180,500. And let’s not forget that stock was priced at $290 in October 2018. Who’s the genius now?
Bank of America (BAC) – Lost Gain of $500,000+
In early 2009, I went all-in with Bank of America and purchased 21,000 shares at $5.50 per share. It was a move of a desperate man because it was possible that I would lose my job, which would have meant losing my house. I had a $100,000 home equity line of credit (HELOC) and I used that plus a little more to purchase the shares.
It was scary back then. All hell was breaking loose, there were talks of financial apocalypse, and I think this is where my trading mentality kicked it. I sold all that stock in April of 2009 (just a couple of months later) for $10 per share and made a cool profit of $94,500.
Of course, we know now that the market had just bottomed when I sold my shares. It’s hard being unhappy making a $94,500 profit in a couple of months but today Bank of America is priced at $30 per share. If I hadn’t sold (my new approach), I could be holding this stock valued at $630,000 with a gain (not including dividends) of over $500,000.
Visa (V) – Lost Gain of $120,000+
And finally, there is Visa. I bought 100 shares in February 2010 and another 100 shares in May 2010 for a total of $16,243. The company did a 4-1 split so my 200 shares became 800 and had a cost basis was $20.30 per share. Remember, I’m a “genius” so I sold my shares on 7/9/10 for a loss (yes, a loss) of -$1,019.
One of the greatest growth companies since the financial crisis and I have a loss to show for my efforts. Today, Visa is valued at approximately $175 per share. If I hadn’t sold (my new approach), I could be holding this stock valued at $140,000 with a gain (not including dividends) of over $120,000.
Today, Bank of America and Visa are both on my Master Stock List. These are companies I would buy and hold if I purchased the at the right price. In the case of these two companies, I think buy BAC for $5.50 per share and V for $20 per share is a heavenly price.
Needless to say, telling my wife this morning that we could have been $800,000 richer if we had hung on to those 3 stocks was painful. As usual, she took it in stride but I could tell it was difficult news to hear.
So What Have We Learned?
I’m never one to make excuses but I do like to understand, learn, and grow. The Tech Crash (2000-2002) and Financial Crisis (2007-2009) had profound impacts on my psychology. I also think the $94,000 two-month gain in Bank of America gave me the false courage to trade. Truly, the lessons for this 3-part series are fairly simple but let’s do a quick high-level review:
- Don’t buy junk companies
- Don’t trade
- Buy and hold quality companies (i.e. Visa and Bank of America)
The “don’t buy junk” lesson is the reason I put together the Master Stock List. These companies are strong, quality companies that will likely be around after I leave this earth. I know I mention this list often in my writings but it’s my way of telling you to stay away from junk.
Though I say “don’t trade,” I should probably add not to play with junk and leveraged trading instruments (i.e. TZA) too. My trading approach lost me thousands of dollars and probably kept me from being retired by now.
The “buy and hold” concept is lost on the individual investor too. For the last 20-years, investors have average holding times (see chart below) between 6-14 months. So much for the buy and hold investor. That approach seems to be dead even though that’s exactly what we should be doing.
The chart shows how most people don’t have the strength to hold onto their stocks. Without a defined approach to investing your capital you’ll be subject to headlines, price drops, and volatility. Buy high and sell low is an approach that will destroy your wealth. Any investment that you would sell, upon encountering any kind of adversity, is probably not worth buying in the first place.
Personally, I think easy access to information (both good and bad), ability to trade with a computer (or phone), and market shocks (i.e. Tech Crash and Financial Crisis) have contributed to this change. In the old days, it was a lot harder to buy and sell stocks but not anymore.
Conclusion
My experiences (both good and stupid) have given me the strength to hold and actually buy more when a quality company goes on sale. I now have experienced what I always knew but had to learn the hard way, quality counts.
Be honest with yourself and the approach you employ with your hard earned money. Know that you are not smarter than the market, you don’t have a trading “system” that wins in all conditions. Even I looked like a genius with some junk stocks and the market was rising and lifting all boats.
Avoid selling low or panicking when things aren’t going well. This is a critical point to building long-term wealth. Lower prices are the best times to add to your investment. Only buy companies that you’ll buy more of if they drop in price.
Those are the investing gifts that you’ll harvest years later and that’s how you build wealth. Understanding this concept is the greatest gift this blog can provide. You do this part well and it will change your life.
Buy and hold quality stocks, buy more if it drops in price, reinvest your dividends until you need them, and repeat this process over and over. You do this for 20+ years and your older self will be able to retire when most can’t.
This could have been a 15-part series of investing mistakes but I think you get the idea. Please learn from my mistakes … the earlier the better.
Thanks for reading!
Mr. TLR