We’ve all been haunted by that one decision to take stock profits too early. At some point we all go through the “what if I didn’t sell Facebook, Inc. (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc. (NASDAQ:GOOG), Netflix, Inc. (NASDAQ:NFLX), Montage Technology Group Limite (NASDAQ:MONT), (insert your biggest regret)” type of moment after those stocks continued to rise. It’s human nature to have hindsight regret.
My full time investing journey is full of these types of mishaps. So yes, I have had fleeting feelings of regret after seeing a stock I sold go up.
For example, I sold Monster Beverage Corporation (NASDAQ:MNST) in 2004 when it was trading around $0.75, split adjusted (under old symbol, HANS), after quickly doubling my money. Shares recently traded at an all-time high of $87 per share. I failed to understand the significance of the new line of products (energy drinks) management launched in 1997 to reignite growth. At that time, the company was this boring “juice box” company with annual revenue tracking at about $200 million. During my initial interview with management, the CEO at the time mentioned that they were trying to get a new energy drink line going, but was not sure if the plan was going to work. Today, the company boasts revenue of $4.5 billion and has been the best performing stock of the century, seeing its market value go from $70 million to $43 billion, a true “why microcap to big cap” story.
I could not have timed my sale of shares any better, right before growth took a huge leap forward and the market took notice. I pretty much ignored the fact that the company had been posting modest growth since 1997.
I had a similar experience with top 3 cable operator Charter Communications, Inc. (NASDAQ:CHTR). I bought the stock after it came out of bankruptcy and made a quick double, selling it at around $40. I sold it because I was just playing the exit chapter 11 trade that has worked well for over time. It now trades just shy of its all-time high of $635.85.
My investing battleground is littered with these types of examples, as I’m sure it is with many of us. No doubt, it is excruciating to sell a stock then watch it make an incredible multi-bagger move.
In the end, wallowing in your regret is not healthy. Not only can it force you to make bad decisions “to get even”, but it can paralyze your future investment decisions that you know are probably right. In other words, it is very detrimental to your trading/investing development since there will be obvious buys that you did not jump into, and on the flip side, you’ll hold stocks you shouldn’t have. Furthermore, regret can also turn into self-demoralization which can have negative effects on your overall quality of life. Trust me, I have been there.
More importantly, remember that for every stock you may have sold that went on to become a multi-bagger, I bet there are many others that were on their way to multi-bagger status that eventually multi-busted. I had a lot of these where I was like “wow, I got lucky locking in profits on this one”, or “man, I wish I had sold.”
Honestly, for many years I was just not a good enough investor to hold a stock for the long-term. I was frightened to death of holding stocks long term. Even though I have always hunted for Tier One quality microcaps, my mindset was on making money on my investments within a year by looking for short-term growth inflection points. The strategy worked very well, but a post mortem of my past stock picks over the years exposed that I would have performed exponentially better if I held the right stocks for multiple years, along with some “locking in partial profits” as a stock price increased. The approach I was taking was just not that conducive to vetting the long-term viability of a business.
I know being able to cherry pick what stocks will multi-bag or multi-bust is easier said than done, but isn’t that what separates the good investors from the great ones? So, over the last 15 years I have really made a better effort to determine what stocks I want to hold for the long-term and which ones I don’t. This process allows me to build a core portfolio of stocks with the most of my capital that I plan to hold long-term that is surrounded by shorter-term bets with the rest of my funds. My longest holding, Repro Med Systems, Inc. (NASDAQ:KRMD), is 13 years and up 2,800% (peaked at 5,200%), easily making up for mistakes of some multi-busts along the way.
“There was this SaaS company, Determine Inc. (old symbol DTRM) (formerly Selectica, Inc.) that got me good. I got excited because I had started gaining interest in investing in recurring revenue software business models. This particular company was in the midst of a turnaround and had some well-known investors actively supporting the turnaround. The stock quickly rose 100% to around $7.00 and then gradually descended through numerous stock offerings as the turn around failed to gain momentum. However, I stuck with it as the larger investors continued to fund the company. I became emotional with the stock. Had I dug deeper into these investors I would have learned that they were not as great as I thought in that they structured their deals in a way intended to benefit them at the expense of shareholders.”
One of the lessons here? Thinking long-term does not mean “set it and forget it”. Should the story change, so too may my holding period.
Instead of kicking yourself when stocks you sell continue to rise, ask yourself if you could have done a better job understanding the businesses in which you invested, and is their room for you to improve the way you react and avoid panic selling during market sell-offs, as I eluded upon in a prior Weekly Wrap Up here.
Maj Soueidan, Co-founder GeoInvesting
GeoInvesting Weekly Premium Email and Call To Action Updates (Sept 28 – Oct. 2)
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What to Expect Next
Maj will be putting out a video discussing Information Analysis Inc (OOTC:IAIC), a GeoInvesting long that we’ve been covering since December 2017, when it caught our attention as we reviewed some microcap earnings from the recently ended Q3 2017 earnings season. Since then:
- On January 16, 2018, we established a long position in the stock at $0.47 and added it to our Run To One Model Portfolio.
- We were sure to put out consistent reminders that it was/is a story that could take time to play out as it was/is in the early stages of its turnaround plan, and has heavy reliance on government contracts.
- On August 17, 2020, we pointed out that information arbitrage in Q2 hinted that the company could be on the cusp of sustained revenue growth and profitability for the first time in its history. This sentiment was based on a government contract award that could generate comparatively meaningful annually and help the company achieve profitability. The kicker was that this contract was historically awarded to another company who initially protested the shift of the award to IAIC. Now, with its main peer out of the equation, IAIC can focus on growing its business with its rejuvenated contract pipeline, and without distraction.