How Well Can You Stomach Success?
Posted: Sun Jan 16, 2011 9:36 pm
I've lost my appetite for speculation. Truthfully, I never had the stomach for it.
I started investing during the dotcom boom and made a lot of unrealized gains which eventually became realized losses.
Having lost my desire to take big risks with my money, in early June of 2003 I decided to take a very small risk on a small "fruit" company, at $9 a share, that most people had doubts about. A little over a year later I had doubled my small investment, yet I did not celebrate due to the tiny initial investment I had made.
2005 proved to be a very big year for the company, and by the end of that year the company had climbed to roughly $75. My predictions had been vindicated, but I could not bring myself to sell as I was sure the future was still bright for the company. It was clear to me that the best was yet to come. I kept telling myself that I put so little into my initial investment that I shouldn't worry about losing money at this point. I would keep a very close eye on the company, and if a hint of bad news about the fundamentals of the company crept into the picture, I would sell it.
By the end of 2007, my little "fruit" company had reached $200 a share. Yep. I didn't sell it. I still believed in the company's future potential. Besides, I had put so little into the company that even if I lost half of my unrealized profit, I'd still be happy with any decent return. Was I crazy??
As luck would have it, my stock dropped to $85 in 2008. The future of the company still looked great, but the company's CEO had personal issues and the overall market weighed heavily on the stock price. I held on and certainly regretted not selling at the high.
What was I thinking??
Still, I stuck to my guns because I felt that the market was overreacting. I firmly believed that the fundamentals of the company couldn't have been better.
2009 proved to be a great year. The stock steadily rose to $212 by the end of 2009. I had told myself that I would sell if the stock ever climbed back to this level.
But, the company seemed to be poised to keep growing. That old excuse of having put so little into the company crept back into my head. I had nothing to lose, right?
2010 came along, and the stock kept climbing. My little "fruit" company had easily outgrown its largest competitor and was on its way to becoming one of the largest companies on the face of the planet! Meanwhile, the outlook for the world economy continued to darken. What to do?
I sold at $250.
After a 2,500% profit, I moved all of my money into a brand new Permanent Portfolio. Yes, I did very well with my stock pick, and I feel lucky that it more than offset my other losses. But, my initial investment was so small that it barely changed my net worth over those seven years. It was then that I finally realized that I didn't have the stomach for speculation anymore. It was too wild of a ride to hang on to. Even after all that profit, I regret not having invested more in the company, and I realize that I will likely never be able to pick a stock like that again.
It also occurred to me that I would have never realized a 2,500% profit if I had initially invested a substantial amount of money in that company — I probably would have sold most of my stock years ago to lock in a solid profit. Had I employed any kind of market timing strategies, I likely would have sold at the wrong time, or minimized my return due to its high level of volatility. In reality, there was almost no way to invest in the company without uneasiness, stomach-churning, or some level of regret.
The company, if you haven't figured it out by now, is Apple Inc. and its stock is now hovering at $348 as I write this. The company looks like it may never stop growing.
Even though, entirely due to luck, I managed to pick the stock of the decade — and actually held onto it for most of the decade — my emotions still prevented me from even coming close to realizing the gain that I could have.
I've read many accounts from those who have wisely realized that the stability of the Permanent Portfolio allows them to stay the course when bad times come along. But, the truth is that there is plenty of hand-wringing on the upside of any high-flying investment. It's not nearly as easy as you think it will be.
It's not often that people get a chance to experience such high-flying success, but I can tell you from experience that it was hard to hold on for the ride. The Permanent Portfolio has made investing a lot easier to manage. Success is not nearly as easy as it sounds.
I started investing during the dotcom boom and made a lot of unrealized gains which eventually became realized losses.
Having lost my desire to take big risks with my money, in early June of 2003 I decided to take a very small risk on a small "fruit" company, at $9 a share, that most people had doubts about. A little over a year later I had doubled my small investment, yet I did not celebrate due to the tiny initial investment I had made.
2005 proved to be a very big year for the company, and by the end of that year the company had climbed to roughly $75. My predictions had been vindicated, but I could not bring myself to sell as I was sure the future was still bright for the company. It was clear to me that the best was yet to come. I kept telling myself that I put so little into my initial investment that I shouldn't worry about losing money at this point. I would keep a very close eye on the company, and if a hint of bad news about the fundamentals of the company crept into the picture, I would sell it.
By the end of 2007, my little "fruit" company had reached $200 a share. Yep. I didn't sell it. I still believed in the company's future potential. Besides, I had put so little into the company that even if I lost half of my unrealized profit, I'd still be happy with any decent return. Was I crazy??
As luck would have it, my stock dropped to $85 in 2008. The future of the company still looked great, but the company's CEO had personal issues and the overall market weighed heavily on the stock price. I held on and certainly regretted not selling at the high.
What was I thinking??
Still, I stuck to my guns because I felt that the market was overreacting. I firmly believed that the fundamentals of the company couldn't have been better.
2009 proved to be a great year. The stock steadily rose to $212 by the end of 2009. I had told myself that I would sell if the stock ever climbed back to this level.
But, the company seemed to be poised to keep growing. That old excuse of having put so little into the company crept back into my head. I had nothing to lose, right?
2010 came along, and the stock kept climbing. My little "fruit" company had easily outgrown its largest competitor and was on its way to becoming one of the largest companies on the face of the planet! Meanwhile, the outlook for the world economy continued to darken. What to do?
I sold at $250.
After a 2,500% profit, I moved all of my money into a brand new Permanent Portfolio. Yes, I did very well with my stock pick, and I feel lucky that it more than offset my other losses. But, my initial investment was so small that it barely changed my net worth over those seven years. It was then that I finally realized that I didn't have the stomach for speculation anymore. It was too wild of a ride to hang on to. Even after all that profit, I regret not having invested more in the company, and I realize that I will likely never be able to pick a stock like that again.
It also occurred to me that I would have never realized a 2,500% profit if I had initially invested a substantial amount of money in that company — I probably would have sold most of my stock years ago to lock in a solid profit. Had I employed any kind of market timing strategies, I likely would have sold at the wrong time, or minimized my return due to its high level of volatility. In reality, there was almost no way to invest in the company without uneasiness, stomach-churning, or some level of regret.
The company, if you haven't figured it out by now, is Apple Inc. and its stock is now hovering at $348 as I write this. The company looks like it may never stop growing.
Even though, entirely due to luck, I managed to pick the stock of the decade — and actually held onto it for most of the decade — my emotions still prevented me from even coming close to realizing the gain that I could have.
I've read many accounts from those who have wisely realized that the stability of the Permanent Portfolio allows them to stay the course when bad times come along. But, the truth is that there is plenty of hand-wringing on the upside of any high-flying investment. It's not nearly as easy as you think it will be.
It's not often that people get a chance to experience such high-flying success, but I can tell you from experience that it was hard to hold on for the ride. The Permanent Portfolio has made investing a lot easier to manage. Success is not nearly as easy as it sounds.