The Dumbest Mistake I’ve Made In the Market: Netflix Inc. (NFLX), eBay Inc (EBAY)

Jimmy had two rules about investing.  He could make decisions to buy or sell within the bounds of the rules, but he stuck to the rules no matter what.  We’ll get to those rules in a minute, but first … a little background.

I got my a Bachelors in Engineering and set off into the wilderness of the job market with a diploma in hand and a twinkle in my eye.  My first position was in an aluminum foundry.  There, I met a man named Jimmy whose office was right across from mine.  Over the first few months, we formed a friendship and he introduced me to investing.  I was hooked when he told me that one year he made more in investments than he did from working the job we shared.  I bought a copy of “Investing for Dummies” (no, I’m actually serious) and set aside a small sum to give it a go.

Netflix, Inc. (NASDAQ:NFLX)I didn’t yet understand about dividends, shorting, options and all the other things a person learns when they get further along in investing.  More importantly, I didn’t understand the concept of disruptive innovation.  But, I put my money in a few companies that might be termed “Rule Breakers” by the Gardner brothers.

Then: I bought eBay Inc (NASDAQ:EBAY) in September of 2005 for $37.74/share.  I sold eBay only three months later for $44.83/share (19% return).  That’s pretty remarkable and it was the first sign that I knew what I was doing (Spoiler alert: I didn’t know what I was doing).

Investment philosophy then: I like buying things off of eBay.  The company is doing something unique.  The stock went up in a short time period.  Sell it.

Now:  Since I sold, the share price has increased over 25%, but it took a nose-dive shortly after I sold.  Good thing, right?  Well, if you truly believe in the business model, you want the stock to go “on sale.”  Patient, long-term investors wait for an opportunity in the stock price and then buy.

Investment philosophy now: eBay has significant network effects.  Almost eight years later, they still occupy a pretty unique niche in the market.  PayPal is positioned well to capture significant market share in the mobile payment revolution.

EBAY data by YCharts

Netflix, Inc. (NASDAQ:NFLX)

Then: I bought Netflix the same day as eBay (September 2005).  I sold in December 2005 for a loss of 4%.

Investment philosophy: I really hate driving seven miles to Blockbuster.  Those late fees are ridiculous.

Now: Since I bought the Netflix in 2005, the shares have increased over 700%.  I look like an idiot.  Investment philosophy: Although Netflix is battling headwinds on rising content cost and made a major misstep in the Qwikster debacle, Netflix has first mover advantages in the space and is moving in the right direction by beginning to develop its own content.  One major proprietary series can help to neutralize the networks during negotiations.  That said, I can’t say I am a buyer at this price/earnings (P/E) ratio.

NFLX data by YCharts

Apple Inc. (NASDAQ:AAPL)

Then: I bought Apple at $84.48/share in February 2007, before the iPhone came out.  Impressed, right?  Well, it was pure luck.  The stock doubled in eight short months and I sold.  I bought again when it dropped back into the $120s.

Investment philosophy: I love my iPod and I feel an element of cool with the product.  That’s got to be worth something, right?

Now:  I’ve bought and sold several times on the way and up and the way down.  I’m actually excited about the stock once again with the rumors of the iWatch.  Read about that here.

Investment philosophy: Technology companies have been near the top of the market cap before, but rarely has a technology company of this size and prospects traded at a forward P/E of less than 10.  Apple still has a few things up its sleeve.  The question is whether they can disrupt another market.

AAPL data by YCharts

That brings me around to the title of this article.  The dumbest mistake I’ve made in the market? Not taking the long-term approach at ALL times.  If I had adopted a “buy and hold” approach from the beginning, I would have had the following results: >25% gain, >700% gain, >540% gain.  If you truly believe that a company will revolutionize the market, buy and hold until they prove you right.

Oh, and those two rules that served Jimmy so well?

1). If a stock doubles, sell half of it. You still have the stock with room to run, but you got your initial investment out.  Everything else is gravy.

2). If a stock drops by 20%, sell it.  Hardly does a stock recover if it drops more than 20%.

That obviously worked for Jimmy.  I have adopted more of a buy and hold approach.

I’ll leave you with some words of wisdom by the Oracle of Omaha (Warren Buffett): ”Our favorite holding period is forever.”

The article The Dumbest Mistake I’ve Made In the Market originally appeared on Fool.com and is written by Robbie Laney.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

10 Worst Airlines in the World

The 10 Biggest Tax Havens in the World to Stash Your Money

The 15 Most Murderous Countries in the World

10 Largest Colleges in the World: Bigger Isn’t Always Better

Comedians in Cars Getting Coffee: The 6 Comedians Seinfeld Needs to Interview

Easy Money: The 10 Most Successful Investors in the World Today

The 10 Most Deadly Diseases in the World Today

The 5 Most Expensive Luxury Motorhomes in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!