Permit me to wipe the tears from my eyes before I launch into this story. It might be an important one for you to learn from, especially if you’re somewhat new to investing or you’ve got many years before you’ll retire.
This is a story of regret — because back in 1995, I made what turned out to be a very costly investing mistake. How costly? Well, I lost out on a gain of around $2.3 million. Yikes, right?
What I did
Let’s go back to 1995, fully 28 years ago. You may not have been born yet, so I’ll fill you in on what was happening at the time:
- A federal building in Oklahoma City was bombed, killing 168 people.
- O.J. Simpson was found not guilty of murder.
- Books by John Grisham, Danielle Steel, and Stephen King topped various best-seller lists.
- Popular movies that year included Toy Story and Apollo 13.
- Windows 95 was launched.
- The Dow Jones Industrial Average closed above 5,000 for the first time. (It’s been above 34,000 recently.)
Here are two other things that happened in 1995:
- On June 22, I bought 100 shares of Apple Computer — now Apple (AAPL -1.71%) — at $49 apiece, spending a total of $4,900 plus the trading commission of $54.
- On Aug. 28, I sold 100 shares of Apple Computer at $45 per share, netting roughly $4,450.
I realized a net loss of around $500.
What’s the big deal?
A $500 loss isn’t so bad, and realizing it is the right thing to do in various circumstances. But… what if I’d hung on?
Well, let’s do the math. I had 100 shares in 1995, and since then, Apple has had four stock splits. (Stock splits don’t really change the value of your holdings much, but they do affect the math calculations.) After a 2-for-1 split in 2000, I’d have had 200 shares. After another 2-for-1 in 2005, my total would be 400 shares. A 7-for-1 split in 2014 would turn those into 2,800 shares, and a 4-for-1 split in 2020 would make it 11,200 shares.
Apple’s shares were recently trading at around $179 each. If I still held those 11,200 shares, they would be worth a total of… $2 million. Ouch!
It gets (a little) worse, too — because Apple now pays a dividend. According to the calculator at theonlineinvestor.com, an investment in Apple shares with dividends reinvested would have averaged annual growth of about 25% between 1995 and now. Apply that to the value of the shares I sold in 1995, and the total gain would look more like $2.3 million. (That noise you hear is me banging my head against my desk.)
Why I did it
It’s a painful missed gain to look at, but I need to remind myself that it wasn’t crazy to sell out of Apple at the time. It was not firing on many cylinders then, as it is now. Indeed, the revered co-founder of Apple, Steve Jobs, had departed the company in 1985, leaving it in John Sculley’s hands. Sculley was pushed out in 1993 and succeeded by Michael Spindler, who left in 1996, only to be followed by Gil Amelio, who led the company from 1996 to 1997 — when Steve Jobs returned.
It was after that that Apple launched many killer products, such as the iPod (2001), iPhone (2007), iPad (2010), Apple Watch (2014), and AirPods (2016).
Lessons to learn
This unfortunate episode of mine offers a smorgasbord of lessons — for both me and, maybe, you:
- The power of long-term investing: The magnitude of the gains that I left on the table show the value of hanging on for decades — to stocks with great long-term promise. That means hanging on through thick and thin. In this example, I didn’t even hang on for four months!
- The power of compromising: Of course, you shouldn’t hang on blindly if you no longer have confidence in a stock. In such situations, selling can be best. If you’re not sure, though, consider selling some. Had I sold half my shares and hung onto the rest, for example, I’d be sitting on more than a million dollars.
- The value of focusing: At the time, I didn’t have a lot of money to invest, so whenever I ran across a compelling idea, I’d have to sell some stocks in order to invest in another. This kind of relatively rapid buying and selling did not serve me well. Reviewing my records, I can see that I sold out of many solid companies too soon, not giving them years or even decades in which to grow for me.
- The value of researching: I also jumped into and out of lots of companies that are not around anymore. Had I done more research into them, and avoided investing in companies whose businesses and business models I didn’t fully understand, I’d likely have avoided some losses.
- The value of paying attention to value: Back in 1995, I was only paying a little attention to what a given stock was really worth — its intrinsic value. This is a costly rookie mistake. It’s important to not only seek great companies, but to also aim to buy into them at attractive prices, giving yourself a margin of safety.
- The index fund option: Any of us who is not doing great investing in individual stocks or who doesn’t have the time, interest, or skills for it should remember that a terrific alternative exists: simple, low-fee index funds.
I hope this cautionary tale helps you become a better investor — and that you can avoid making some of the costly blunders I’ve made. By the way, I bought back into Apple some years ago, so I’ve more than made up that $500 loss.