A Missed Opportunity Leads to Learning
May 1st 2013 9:15PM
Updated May 2nd 2013 6:15AM
Compared to many of my compatriots here at The Motley Fool, I am still relatively new to investing. Prior to last year, my investing experience was limited primarily to mutual funds, with some light dabbling into individual stocks. I had some successes along the way, but my "trader" mentality often got the best of me and led me to sell my shares on a whim, buying or selling based on price and not a whole lot else.
I like to think that I've shifted my mentality a bit over the past 18 months. I feel more like an investor than ever before, and plan on holding onto many of my investments for a long time. Once I make an investment decision, I try to avoid thinking about other opportunities that I let slip away. Alas, I am human, and my choice of Under Armour last year over a group of other qualified candidates has had me thinking recently about the way I make investment decisions. Instead of dwelling on the missed gains, however, I decided to learn from the decision and adjust my thinking going forward.
A bit of history
Last August, I identified five companies that I was considering adding to my portfolio, and spent the month looking at various reasons why they would have made great additions to my portfolio. I ultimately went with Under Armour, and while the other stocks remained on my watchlist, I decided to turn my attention to following Under Armour more closely.
Nevertheless, the performance of the other companies on the list over the past eight months has been hard to ignore, so I decided to take a look how each of the candidates has fared since I made my decision, and it is no wonder that I hope for what could have been:
What can you do?
While it is slightly disheartening to have missed out on the great performance from three of these companies, I have no regrets. I still think Under Armour will be a winner in the long run, and remain committed to the company and CEO Kevin Plank. With a long-term horizon and no need to access these funds for quite some time, I view this eight-month snapshot as a learning opportunity more than anything else.
Personally, I look back on my decision last September and wonder if I missed something about Netflix . I honestly thought it was an acquisition candidate, and wouldn't remain as an independent company for much longer. Instead, the company continues to add subscribers, including a robust 3 million during its most recent quarter, and could put up similar results going forward with the return of Arrested Development later this month. I just have to file this in the "lessons learned" category and continue to look for opportunities.
What have I learned?
Over the remainder of my investing life, this one decision will most likely be trumped by others I make along the way. In the meantime, while my overall investing philosophy hasn't changed, there is one thing that I learned last September: You shouldn't wait for a better price or valuation before investing in a company.
I bypassed two companies in favor of Under Armour -- Amazon.com and LinkedIn -- primarily because of their sky-high valuations at the time. LinkedIn has only gone higher since then, and Amazon would have as well if capital expenditures over the past year hadn't led to a loss over the past 12 months. Nevertheless, LinkedIn is the latest addition to my portfolio, and Amazon will probably join it sometime over the next few months. Warren Buffett still laments about waiting for a better price when he bought Wal-Mart, and as much as I'd like to be like Buffett, I think I'll learn a bit from him instead and not let valuation weigh as heavily on my investment decisions.
The bottom line
I don't think that investors should second-guess every investment decision, but instead view certain instances as an opportunity to learn and further strengthen an investment thesis. By looking back at my decision from September, my conviction about Under Armour was reinforced, and I was reminded why I chose it in the first place. Though I may have missed out on the great performance of three other companies, I also learned an important lesson about the difference between trading and investing. This lesson should continue to serve me well throughout the rest of my life.
The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.
The article A Missed Opportunity Leads to Learning originally appeared on Fool.com.Fool contributor Robert Eberhard owns shares of LinkedIn and Under Armour. The Motley Fool recommends and owns shares of Amazon.com, Facebook, LinkedIn, Netflix, and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.