My friend swears he's learned his lesson.
Back in July 1995, this friend -- let's call him Charlie
-- bought
Microsoft at what turned out to be the
highest price it would see that year. The stock was down 15%
in no time, and Charlie was worried. He was smart enough to
know the market is the best wealth-creating machine available
to us regular folks, but stocks to him were sort of like
husbands to Elizabeth Taylor. He liked them well enough, but
he tended to give up when things got a little rocky.
In a matter of weeks, his paper loss was approaching 25%,
and he couldn't stand it anymore. He bailed out.
Needless to say, the next few years were even rougher on
Charlie as he watched Mr. Softy march steadily higher. It
achieved 10-bagger status at the height of the bull market in
2000, but even today it's 380% higher than when he sold --
despite two horrendous bear markets.
Get ready for a 25% drop
As Tom and David Gardner tell their
Motley Fool Stock Advisormembers, you have to expect
significant dips from some of your stocks, and you must
remain firm if you've done your homework. Otherwise, you sort
of screw up that legendary investing formula by buying
highand selling
low.
This table should really drive home the point for you.
While doing some research earlier this year on top performers
from the prior decade, I decided to calculate their largest
drops. These were true all-stars, yet investors who bailed on
them missed out on some life-changing gains.
Company
Feb. 1999-Feb. 2009 Gain
Largest Drop
Apple (Nasdaq: AAPL)
926%
76%
Adobe (Nasdaq: ADBE)
235%
70%
ExxonMobil (NYSE: XOM)
153%
34%
Transocean (NYSE: RIG)
193%
71%
Apollo Group (Nasdaq: APOL)
443%
61% Continued... |