Four times in my life I have thought: “That would be a good stock to buy.” And all of those times, it turned out I was right. The first time was when Chipotle went public. It was Jon’s idea; we were eating there often at the time, and he mentioned that he thought it would be a hot stock. I agreed, bought it in the high-40s and sold at $67. It was way overvalued, but that didn’t stop it from topping $100 before coming back to earth.
Bed, Bath & Beyond. More than a year later, I had a great experience registering at Bed Bath & Beyond for our wedding. In fact, I found myself going there two or three times a month to pick up something I needed. “What a good company,” I thought, in January of 2008, when the stock was around $24. Based on a quick calculation, I decided it seemed fairly valued–not underpriced, not overpriced. But Jon and his dad convinced me that buying retail was a bad idea; I didn’t pull the trigger, and a few months later it was up to $28. It’s back down now, but still above $23. If I had invested all my money in BBBY, I’d be in great shape right now.
Visa. In 2008, I thought Visa would be the hot IPO, because MasterCard had done so well. I bought Visa around $62 and sold at $82, because the stock seemed overvalued and a friend of mine told me she thought consumer credit would be the next shoe to drop. Turns out she was right. The stock is now below $50.
Amazon. Then, a few weeks ago, I said to Jon: “You know, Amazon is a great company.” Over the holidays, I bought many of my gifts there, because it always offered the best deals, even with the additional shipping costs. And Amazon is one of the major providers of cloud computing services to small businesses, a huge market with tremendous growth potential. I thought about buying shares but decided against it, since I’ve been losing so much money in the market. Too bad; Amazon’s shares rose more than 17% after the company announced better-than-expected earnings last week.
On the other hand … regular readers of this blog may have noticed something. These stocks that I’ve “picked” don’t really mirror the ones I actually own. Jon does a lot more research before buying stock, and based on his research, we bought GE and Bank of America shares in 2008. (Yesterday, Jon said, “Owning GE is like owning a mutual fund, because it’s so diversified.” I said: “Yeah, a mutual fund that has lost 60% of its value.”) As long as GE continues paying its dividend, we’ll keep getting a good return, but if it cuts the dividend … well, then the stock will really tank. If you want a brief history of our ownership of GE, you can read about our first purchase, and subsequent debates about whether to buy more. As for Bank of America … well, it’s too traumatic to talk about.
Also, I once decided that I should buy a solar energy stock, did a bunch of research, and decided on Energy Conversion Devices. I bought it for $30-something, it plodded along for a year until I sold it, and later did very well. Now it’s back down to $25 or so.
So my point is not that I have any claim to brilliance in picking stocks. Actually, except for two shining moments with Chipotle and Visa, my purchases have done, at best, no better than than the market as a whole. But it seems that I make bad investing decisions when I don’t follow my instincts. And if I followed my instincts, I might do a little better. On the other hand, those instinctual purchases were, at best, good guesses. What do you think? Should I follow my instincts more or less? Or should I chuck it all and invest in index funds?
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February 22, 2009 at 3:41 pm
[...] how it happened. As I have previously discussed, I missed a good chance to invest in Amazon in January. Over the holidays, I came to the conclusion [...]