January 19, 2007

buy and hold, buy and hold

That's the prevailing advice. It's the smart thing to do, and the numbers through the years definitely support it. But man, is it hard to do. Especially for someone who has a gambler's mentality like me. Speaking tangentially, maybe investing isn't the best thing for someone like me, but its also necessary for someone like me to build wealth. I just need to keep it in check.

So today's post is about another lesson I learned recently about the importance of buying and holding. There's another side lesson too, and I'll cover that as well.

Here goes..

Every year, around the November timeframe, The Motley Fool issues its top picks for the upcoming year. They actually have a great track record (even after discounting the boost they get alone from issuing the picks). A year and a half ago, I ponied up in late December for their report, and saw that BioMarin (BMRN) was one of their picks. The rationale made sense, so I bought shares of the company.

So the idea was that BioMarin was on the verge of getting FDA approval and/or had some really good stuff in its pipeline (sorry, bad memory here). The guys at Motley Fool said that once that catalyst occurs, the stock should rise. So I ended up buying the stock at around $7. I held it for a short amount of time, and during that time, the stock languished. After a while, I got tired of waiting for "the big news" and sold off around the price I bought the stock at. Didn't lose much, just the cost of commissions. (If you're wondering how I don't remember why I bought the stock, but I remember what price I bought/sold at -- I keep a record of every stock purchase.)

Just for kicks a week ago, I decided to buy the 2007 version of Motley Fool's stocks picks. In it, I saw that since they recommended BioMarin, the stock had jumped over 200%. My eyes bugged out, and I quickly looked up the stock price. Sadly (for me), it was above $17. If I had just been a bit more patient, I would've made 143% on my investment.

I know I shouldn't play the woulda-shoulda-coulda game, but still, seeing this stuff hurts. But I do take solace in that besides the lesson of buy-and-hold, I also learned another -- invest in what you know and understand. When I bought BioMarin, I really didn't know anything about their business, their industry or their market situation (as evident by the fact I can't even remember why I bought their stock). Since then, I've been much more disciplined in buying what I know and/or stock where I feel pretty confident in understanding their business (hence, the Yahoo, Baidu and Microsoft stock buys). So all wasn't for naught. =)

fyi -- Another valuable lesson is that the Fool allows you to return your purchases, no questions asked!

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