I guess everybody has them: sorry stocks. Most people will think of the losers in their portfolio as sorry stocks, but for me, sorry stocks are something else. Sorry stocks are those that I still don't have in my portfolio and that have done awfully good in the meantime. Those (virtual) losses add up to much more lost money than any decline from the losers in my portfolio.
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I divide my sorry stocks into two categories. The first group is the biggest for me: stocks that I have wanted to own for years, that were always near the top of my wishlist, but that I ended up not buying because there always seemed better opportunities or positions to add to.
The second category is shorter but maybe even more painful: stocks that I once owned but sold because they were "overvalued" or for any other reason. But these stocks have taught me a very powerful lesson. I made gains with them, but just a fraction of the huge returns I could have made by just sitting on my hands instead of selling.
How I thought back then
Years ago, I was a value investor and I didn't have the insight that compounding high growth obliterates any perceived "value" or price target. So, I bought stocks of companies that I was convinced were undervalued. I found out that by doing so, I could almost never purchase shares of the great companies of our time. Companies like Microsoft (MSFT), Shopify (SHOP), Amazon (AMZN), Adobe (ADBE), Salesforce (CRM), etc. - those were all stocks that I actually wanted in my portfolio. Only then did I realize what Buffett's advice really meant:
I wanted that my portfolio should reflect who I was more. I'm not a mathematician. But if that is not my strength, why did I act as if it was? Probably, I have to admit, because that is what you are supposed to do in the world of investing. People who can show numbers are easier believed.
But my strengths are not about numbers, but rather insight on what new techniques might work (and which not), what might be difficult to monetize and what not, who are the really great leaders and who are just also-rans, what millennials really want, etc.
I didn't have the feeling that my portfolio reflected my personality by buying companies like 3M (MMM) or Johnson & Johnson (JNJ) when they were at a perceived fair or low price. What I did was just following the herd, not my own insights. Just to make it clear: I don't have anything against these companies, but they don't fit my personality and, therefore, are not my investment style. If they reflect yours, or they reflected yours once and you still hold them, by all means be happy. You have done a better job than I did for years. But I wanted companies like Amazon, Salesforce, Alibaba (BABA), Shopify and Okta (OKTA). Yes, they always seemed to be very expensive, but I had a better feeling with them. They felt more like me, closer to my heart.
So, I started to change my investment style and became more and more of a growth investor. And the stocks in my portfolio started to reflect my personality. But the transition from value to growth didn't go that smoothly.
While I was a buy-and-hold investor for my value investments, I thought that investing in growth stocks also meant that I had to become more active, that I had to buy and, especially, sell more to reap my gains. Of course, reaping my gains made me miss out the continued upside in the best stocks. I tended to keep my losers and sell my winners, which is about the worst strategy that you can have.
Examples of the first category: Never bought
In the first category, stocks that were near the top of my wishlist for a long time but that I never ended up buying, Salesforce is absolutely a prime example. I have followed Marc Benioff for years, and I've loved everything about the man: his vision, his willingness to apply guerilla marketing, his constant innovation, his efforts towards empowerment for his employees and people who are less fortunate in this society, etc. But I used to think Salesforce's shares were too expensive, so I didn't buy them. And once that I had completed my transition to a growth investor, I thought the company was already too big, so I didn't buy shares. But Salesforce just keeps growing and growing. Finally, after all those years, I started investing in the company just a few weeks ago.
Because that is also something I have learned along the way. Amazon was another stock that I had been watching for years and years. And I always thought it was too expensive (as a value investor) and too big (as a growth investor). Finally, when I bought my first shares, the stock was already at $800. And I have kept my shares, to my great joy.
When I thought of this Amazon experience, it was easier for me to buy my first Salesforce shares. I know that they still have a long way to go, even though the company is already that big. At its current valuation of $124 billion, Salesforce still has the potential to become a ten-bagger over time. It won't be for the first five or ten years, but if it keeps delivering, it will keep growing, just as Amazon has grown beyond everyone's wildest dreams over all those years.
Another prime example of a stock that I kick myself I have never bought is MercadoLibre (MELI). I have had it somewhere the top of my watchlist since early 2016, when it traded at around $90.
That would have been almost a seven-bagger already. Ouch! But it gets worse. In December 2018, we had quite a big drop in the market, especially for tech stocks. MercadoLibre went to $260, and by then I knew that it was a great company. So, I bought it without any hesitation... or at least, that is what I would have wanted to write here. The reality is that I didn't buy and that I still don't have any MercadoLibre shares in my portfolio. I was so excited to add to my other stocks that I ended up without shares of MELI. The sad thing is that if you don't buy at $260, you have a very hard time buying above $600 just a few months later.
Which stocks do you have in this first category, the "should have bought and still should" category? Let me know in the comment section!
Examples of the first category: Bought and sold
Of the second category, stocks that I bought but sold again, there are a few examples too. Veeva (VEEV) is a painful example in this second category. I bought it back in 2015 - on April 3, to be precise - at $25.28. I sold it in May 2016, about a year later, for $27.35 - a very meager return of just 8% for more than a year. The precise date that I sold my shares? May 2016, Friday the 13th. I should have known it spelled no good.
If I had held the stock, it would be a six-bagger by now. And the worst thing is I still don't have it back in my portfolio, although it still is near the top of stocks I want to own.
I guess there is some sort of habituation here: because I am so familiar with the stock, it probably doesn't feel exciting to buy it, while other opportunities feel fresher, and so, I want to buy those first. But Veeva has already a proven track record, so I should probably put my feelings aside and follow my head, not my gut.
Another humbling example? Then I have to talk about Square (SQ). My loyal readers will know that I picked it as the ninth Potential Multibagger. But I bought my first shares of Square in February 2017 at the price of $17.98 and sold them at $24.81 in August of that same year after reading a bearish article that sounded very convincing.
I think it was the last of my mistakes so far, and the silver lining here is that I bought back at $54 in March 2018, averaged down in May 2018, added a few times, and I am all satisfied that I got my shares back. My shares haven't done that much right now at $70 since Square has fallen 30% off from its 52-week high. But I am up a bit, and actually, I don't care. I am very happy that I have corrected my mistake, and I am very confident the company (and so the stock) will do very well over time. And having Square in my portfolio is a constant reminder to me not to sell any shares too fast, especially not on price or overvaluation.
Take Shopify. I really need the Square reminder for that stock. I have had troubles holding my shares for quite some time now. I have to refrain from selling them all. After all, I bought my first shares at $59, but I have been averaging up to about $79. That means, with Shopify at $306, I have an unrealized gain of almost 300%. A part of me still shouts to sell at least a part of my shares. But I like the company too much, and I am pretty sure that over time it will continue to perform at a very high level. Only if the position of Shopify would become too dominant in my portfolio would I consider selling a part of my shares. Now, I wouldn't blame anyone for taking some profits, but holding on to "overvalued" stocks for a very long period can make you very rich, as Amazon and Netflix (NFLX) have shown before.
Do you have any stocks that you ended up selling way too early? Feel free to share them in the comment section.
I think we all have our sorry stocks - stocks that we don't own but we should have had in our portfolio. The most important thing for me is not to feel unhappy about them but learn. And what I have learned over time is that mostly it is not too late to buy those stocks anyway, although you have to pass a threshold of pain, because you could have bought so much lower if only...
Another great lesson has been to buy and hold. I sold Veeva and Square too early, but I have learned my lesson there and was able to hold my Shopify shares, despite the fact that they have been "overvalued" for a long time now. That is part of what investing so much fun: you keep learning, even though you might be an experienced investor.
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Disclosure: I am/we are long BABA, AMZN, SHOP, OKTA, CRM, SQ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.