My Best Investments And Trades

Last month I wrote a post highlighting some of my lowlights in the stock market before I became a dedicated dividend growth investor. The post, aptly titled, “My Investing Missteps And Blunders,” went through some of the more painful trades I have made in questionable stocks with new and unproven products and services. Of course, it wasn’t all pain in those early days of trading. I did, in fact, have some pretty substantial winners during that time period as well. For some added balance to that post I’d now like to feature some of my best investments and trades.

 

 

Let’s go back to early 1993 when Jack in the Box Inc. (JACK), formerly known as Foodmaker, Inc. (FM) at the time, was a fast food chain quickly on the rise adding new stores and growing annual sales at a fast clip till an outbreak of E. coli occurred, infecting 732 people originating from undercooked beef patties. The outbreak was widespread affecting 73 restaurants in California, Idaho, Washington, and Nevada. Of course, this all sounds too familiar as recent similar events rocked Chipotle Mexican Grill, Inc. (CMG). You know the saying, “There’s nothing new under the sun.” In any case, as with CMG in recent times, JACK’s stock tanked as investors sold off shares in anticipation of lawsuits and the potential for a diminished customer base for a brand that has lost some of it former growth luster. Following these events in the news I figured it could be a potentially good time to buy into this fast food chain at depressed prices and on March 10, 1993 I bought 100 shares of JACK (FM) at $8 ½. Remember, stock prices in those days were expressed as fractions. As time went on and the negative headlines featuring Jack in the Box subsided, I noticed the share prices steadily climbing. Not planning on making this a long term investment, rather a short term trade, I sold all 100 shares on September 15, 1993 at exactly $11 a share for a nice gain of 29.4% in just six months! Not too bad of a trade. Of course in hindsight, I would have been better off just holding those shares till today as JACK hit new all time highs over and over again and trades today at $107.46 after a 2:1 stock split and numerous quarters of dividends being paid. But, as I mentioned, I went into this stock as a trade and not a long term investment. I cannot complain about a 29.4% gain in just six months. This example just begs the question, “Is It Wise To Buy Stock After A Catastrophic Event?” More often than not, the answer seems to be “Yes.”

 

My next winning trade posted very similar results after just two months of holding the stock. It was 1996 and the talk of the day was about computers, chips, Wintel machines and the never ending need for faster and faster microchip processing, whether for CPUs, GPUs or Ethernet switches. While reading about this need for faster processing power I came across a company called Vitesse Semiconductor (VTSS) which developed Gallium arsenide circuits instead of traditional silicon chips that proved to be superior in almost every respect and was able to offer better and faster processing power. Of course, news of this company piqued my interest and on March 6, 1996 I picked up some VTSS at $22 7/8. The company was on a real roll in those days as the stock price quickly climbed on the promise of what Gallium arsenide can offer the computing industry. In short time the stock rose to $29 1/8 as I sold my entire position on May 7, 1996 for a gain of 27.3% in just two months. As you can imagine these winning trades in such a short time frame took some of the sting off of my losing trades I experienced in the mid 90s.

 

All of this leads up to one of my best long term investments in terms of capital appreciation and a valuable lesson as well about holding on to losers if you still believe in the original investment thesis. Let me explain. It was 2000 and the markets were riding high, especially the tech heavy NASDAQ which saw dozens upon dozens of Internet start ups go from nothing to millions and billions in market capitalization. Everyone wanted in. If you had a domain name ending in “.com” you could go public. It was a crazy time to say the least. At the time I was about two years into my own start up and was familiar with many of the popular tech companies that were public. One company, Red Hat, Inc. (RHT) caught my eye as I was very familiar with their products and what they offered as all our servers were running on Red Hat Linux and we were very pleased with how it operated. Wanting to get in on the Linux revolution (I’m still a big believer in Linux as I’m writing this post on my laptop running Lubuntu) I bought 200 shares of Red Hat, Inc. (RHT) at $41 ¾ on March 31, 2000.

 

You know, we always talk about market timing and how impossible it is to accurately time the market which if you look back in history, March 31, 2000 was probably one of the worst days to buy anything, especially anything tech related. As we all know, that was the time the tech bubble decided to burst and take everything with it down. To make a long story short, I watched my stock drop from $41 ¾ all the way to a low of about $3 ½ in mid 2001. For those keeping track that’s a 91.6% LOSS!!! What a mess. But, I still believed in Red Hat, what they did, their business model and most importantly, I was a happy customer of their product for almost three years. Surely, this would be a good turnaround story some day? As I mentioned, my original investment thesis had not changed and so I began my slow trek into the world of averaging down. Come mid 2001 I began to buy more shares every time I had extra cash on hand. I bought another 200 shares at $4.64 which immediately brought down my cost for the stock to $23.20. OK, now I’m getting somewhere. I continued to buy many, many more times in 2002, 2003 and 2004 at prices ranging from $5.52 all the way up to $17.60. In all, I would make ten separate buys each time averaging down my cost basis till it reached around $10 a share. By this time, I held a total of 3,000 shares in Red Hat, Inc. (RHT) with a cost basis of about $30,000. As the years rolled by I simply held on to my shares and watched the stock climb into the teens, twenties, thirties, forties and eventually the fifties come mid 2012. By this time I was already a full time dividend growth investor and thought it was time to cash out of this trade which I had held since 2000. It took me about twelve years to realize a profit on this investment but in the end it was a nice return as I sold all 3,000 shares at $56.48 in May 2012 for a gain of 464.8% and for realized a profit of $139,440. Sure, it took me over a decade to realize those gains but in the end I was able to turn a major paper loss into an actualized gain. Of course, it would have been nice to collect some dividends all those years while waiting for the stock price to rebound, which is one of the reasons I decided to go the dividend income route today. Still, no complaints from me (even though the stock trades at $82.60 today 🙂  ) and this last story should offer a good lesson to any investor out there that it’s OK to see some of your holdings in the red as long as you believe in your original investment thesis and nothing fundamental has changed. When I see red in my portfolio I take it as an indicator to buy more shares and average down. God knows I have used that strategy many, many times with my current portfolio.

 

Do you have any similar experiences with some great investments or trades? Please share below.

 

Disclosure: Long NONE

Image courtesy of: Sira Anamwong at FreeDigitalPhotos.net

42 thoughts on “My Best Investments And Trades

    • Hi FV,

      Wash, rinse, repeat. Seems to be a common theme among many options investors. Keep doing what’s working. Those options premiums continue to look enticing to me. Thank you for stopping by and commenting.

    • Hi TMB,

      It’s always nice seeing those serious gains in your portfolio but the main goal for every income investor is seeing that passive income stream continue to grow. As long as those stocks continue to meet your investment criteria, the thesis and fundamentals are not changed, then by all means hold for the long run. It’s what I have been doing with my own portfolio for almost ten years. Thank you for sharing your thoughts.

  1. ha ha ha after your Jack and the Box story alone, I seem to agree it usually pays off to buy a company during a crisis. I still remember all those Jack n’ the Box bobble heads on people’s car antennas. I always thought that was brilliant marketing.

    Yea Chipotle will come back just as Target did during the big Black Friday credit card scandal. I’m really digging this crisis theory. Maybe we should do posts on that idea alone. =)
    Wallet Squirrel recently posted…Naming Force Review: Make Money Naming Start UpsMy Profile

    • Hi WS,

      I’m sure there are many articles written about crisis theory and investing. Sure, sometimes a company can’t come back but from what I have personally seen, if a company is large enough, has the cash flow and a good brand history, it can come back in earnest and recapture its former glory. The key is to stick with those companies during their struggles and buy more shares at discounted prices while waiting for a turnaround. Of course, if the company also pays a dividend it takes some of the sting out of holding on to those shares while you wait. Thank you for commenting.

  2. I almost bought a bunk of JACK stock in 2015. I wish I would have. This baby has been going up and up. I was lucky to take advantage of buying TGT after the credit breach. I sold those shares for a really nice gain. Thanks for sharing.

    • Hi IH,

      JACK has been on a real tear over the last few years. Imagine buying that stock after that E. coli scare I mentioned. In any case, there seems to be no shortage of companies entering a crisis. As I mentioned CMG had it’s issues with food safety and so did MCD and YUM not long ago with that tainted Chinese meat. JNJ with recalls galore and most recently WFC with its own scandal. You have BP and TGT too as you mentioned. Bottom line, most companies could weather catastrophes and these instances simply offer us some unique buying opportunities for the patient investor. Thank you for stopping by and commenting.

  3. I have a few holdings that have done quite well for me with 9 different positions at least doubling excluding cash dividends. Several of those are skewed to the financial sector when I started buying shares coming out of the financial crisis. Those very much fit the “crisis” investments. One investment that I wish I had made was in Apple back when it sold off after Jobs announced his first leave of absence. I didn’t really know much about investing and was very much into the index investing route with just my 401k. That was a big mistake. Every $100 invested then would be ~$950 today plus the dividends. Ooops. I still think back on that every now and then because I felt the company was truly innovative, this was post ipod pre iphone if I remember correctly. But it really helps to reinforce that if I have a conviction about a company I need to invest and if it gets cheaper I need to buy more.
    JC recently posted…Dividend Growth Investing at Work – Another Classic from this ChampionMy Profile

    • Hi JC,

      Sometimes when a company is going through a crisis it can be difficult to pull the trigger and pick up shares. Of course, when others are selling it’s usually the best time to be buying and time always has a way of healing all wounds. Looking back at the history of AAPL it seems like there were multiple times when that company and stock were on the edge only to be pulled back and continue its stellar growth rates. Thank you for sharing some of your personal experiences.

  4. I am still new but there have been a few trades that I have made that are really good to me. I have made an almost 30% gain on one and a nearly 15% on another in 4 and 1 month respectively. While this isn’t a lot and dividends are more important, I don’t mind seeing the gains which kind of helps me remember that i am going for long term growth over the long run.
    Buy, Hold Long recently posted…Arena REIT – Half Year ResultsMy Profile

    • Hi BHL,

      You said it. Being a dividend growth investor is more about holding for the long term and making sure that those dividends keep coming in and grow every year. While it’s nice seeing capital appreciation in your account, it makes it more difficult to accumulate shares as the cost rises. As always, I appreciate your comment.

  5. Great insight in your best trades. The key is to believe in the company and the investment thesis…
    I start to look also at companies that have a major hickup and are business wise still ok… Not that easy, doable
    ambertree recently posted…No more FI for me!My Profile

    • Hi ambertree,

      Thinking in this manner has helped me get through the financial crisis we had almost ten years ago. The fundamentals of the businesses I held in my accounts have not changed nor has any of my investment theses which is why I held on to every share and kept buying during those dark days. Thank you for sharing your thoughts.

  6. I read all your posts and agree with your crissis theory. My question is how do you account for the cost of your buys when calculating the gains?

    • Hi Klr,

      When making multiple buys, especially at lower prices each time, you come up with an average price paid for your total number of shares. That’s how you can figure a total cost for a position and use that figure to calculate your gains when you sell. Thank you for commenting.

    • Hi DI,

      It took many, many years for me to realize a gain with Red Hat and a lot of conviction to keep averaging down in that stock but in the end it worked out well. Nice job with your CMI gain. There’s a classic debate about whether or not one should hold on to their winners or cash out and realize a gain. I’m more in the camp of sticking with long term winners. Thank you for stopping by and commenting.

    • Hi TPOH,

      What’s amazing to me is that we saw two huge bubbles burst in such a short amount of time. In the past, these events occurred once in a lifetime. These days it seems we are on much shakier ground and I have a feeling we’ll be seeing a lot more of these bubbles and bursts in our lifetime. Thank you for sharing your thoughts.

  7. Awesome stories, I love reading these.

    I also agree on many of the crisis theories as long as the business seems to be sound. I like the prospect of CMG coming back because the business is strong. Stores like Sears I am not as confident in.

    I bought a lot of shares of MS right after brexit on 6/24 at $25.38 a share. They are current at $46.56 and it pays a nice dividend.

    “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” – Buffett

    -Cameron

    • Hi SSDD,

      I’m glad you enjoyed this personal account. I hope you also read about My Investing Missteps And Blunders too. I think there’s a big difference between CMG and Sears. It’s not just about a company that’s going through a near term headwind rather deciphering if the fundamentals of a business has changed forever. Remember Kodak? It looks like Sears is headed in the same direction. Nice pick up of MS during the Brexit fears. Buying when others are selling is usually a recipe for some solid returns. Thank you for commenting.

  8. good stuff DH. We all have extreme gains and losses, it is just part of the deal when it comes to stock investing. I put myself through college with stock gains during the dot bomb era. If it wasn’t for that, I may have never been able to afford to go to school. Luckily I graduated before it imploded or I would have had much bigger loan amounts. My worst stock loss was Evergreen Solar (ESLR), what a disaster. I almost lost it all. Thanks for sharing

    -Brian
    Brian recently posted…January Dividends 2017My Profile

    • Hi Brian,

      As you mentioned, it’s all about winning and losing when investing in the market though I am more focused on the long term these days and only buying dividend paying stocks. While the market may rise and fall and so will my stock values, one thing that I’d like to see remain consistent is my dividend income. Thanks for sharing your biggest dud. I shared some of my worst mistakes in an earlier post. I appreciate your comment.

    • Hi vivianne,

      I’m happy you enjoyed these personal stories about some of my worst and best trades. You know the saying, “sometimes you win and sometimes you lose.” Congrats on that awesome BAC performance. You did really well with that trade. It’s nice when solid gains can be put to use in other aspects of your life. As always, I appreciate your comment.

    • Hi dividendgeek,

      That’s how it goes. I think we all have some big winners and losers we can claim. These days, I’m all about solid, sustainable dividend paying stocks. No more moonshots for me rather I diversify among several dozen blue chips and just collect dividends. Thank you for stopping by and commenting.

    • Hi D4F,

      These are some nice gains for the stocks you mentioned. How things change in less than one year. All those stocks were so beaten down and all of a sudden are riding higher once again. I’m still sticking with my HCP. It’s been a rough 2016 for that stock but I think longer term they will be just fine. Thank you for commenting.

  9. I have no big winners, though I invest for dividends only. That said, I recently locked in profits by selling a fifth of my MO holdings for an 80% gain. I routed those gains into a couple marijuana stocks as well as bought more MAIN and SO. Those pot stocks are my only non-dividend payers. Hopefully I’ll be either collecting dividends or sitting on a huge gain a decade from now.

    Your experience with Red Hat proves that the stock market isn’t dangerous. Panicky gamblers masquerading as investors are. I wonder how many people bought Red Hat (or other tech stocks) right around when you did, only to sell everything in a blind panic after that crash? If you instead do your research when buying a stock and hold onto it, you will make money over time. Good for you realizing such huge gains from that company. I bet it hurt at the time, but I bet you smile a bit now every time you use one of their programs.

    Despite writing TWO articles on the Wells Fargo scandal, I wanted to pick up some WFC after the s*** hit the fan with them. Naturally, they rebounded back before I could commit any capital to them. Just my luck.

    Hope our next winners materialize sooner than later!

    Sincerely,
    ARB–Angry Retail Banker
    ARB recently posted…How Should Banks Treat Their Customers?My Profile

    • Hi ARB,

      Like you, I now only invest in dividend paying stocks. At the time of these trades though I was buying anything that seemed to ‘fit my fancy,’ as I shared my stupid stocks buys along with some of my better buys during that time period. Congrats on your nice realization with MO stock and placing those gains directly into new positions. If done right, money should beget money. I like your line about, “Panicky gamblers masquerading as investors.” That’s so true. I can only imagine how many other Red Hat investors sold at or near the bottom just as most sold out of their positions during the 2008/09 sell off. It’s funny how we tend to behave like sheep buying when stocks are getting more expensive only to sell when stock prices plummet and realize net losses. It wasn’t fun watching my investment go down 91.6% and call it ‘smart’ or ‘balls,’ it was even more difficult to make buys at those depressed prices and seemingly put good money after bad while reducing my overall cost basis. In the end it all worked out as I saw Red Hat as an investment, was very familiar and happy with their product and believed in the long term prospects of Linux. As always, I appreciate you stopping by and sharing your thoughts.

    • Hi OBFW,

      I can understand your bias. I too like the large Canadian banks a lot and hold three in my ROTH (TD, BNS and RY). I also have BMO and CM on my watch list but think they are getting a little overpriced these days. Still, I plan to keep these bank stocks indefinitely. Thank you for sharing some of your better performers.

    • Hi MM,

      Investing is all about having winners and the inevitable losers too. Of course, the key thing to remember is that every loss should equate to a lesson learned about what not to do. I’m happy to share my winners and losers and hope that these real life examples can shed some light for any newbie investor. Thank you for stopping by and commenting.

  10. Great post. It takes a lot of patience to wait it out that long and continue to buy more. But it seems it was well worth it for you, even for the lesson alone. While I have only been trading for a few years now, I was lucky enough to find dividend investing early on. My first few “reckless” buys have all been sold off (mostly for a loss) for a tax credit. In turn, I have used the remainder of money from the sales to optimize my portfolio and purchase quality dividend stocks I still hold today. Thanks for sharing.
    Dividend Daze recently posted…New Spreadsheet – Expense TrackerMy Profile

    • Hi DD,

      Patience and staying the course is in my blood, almost to a fault. While it worked out nicely with Red Hat, and believe me it was not easy buying the stock in the $4s when I just bought it in the $40s not long before, but I liked the company a lot and was a happy customer and believed in the future of Linux so I went for it. I definitely learned a lot of lessons from my best and worst buys before becoming a dividend growth investor. Always happy to share some real world trades before my DGI days. Thank you for commenting.

  11. Heh. I’ll be dating myself, but way way way back in the day (early 80s), Chrysler went through one of it’s many crises and went down in the low single figures. I begged and begged by grandfather to buy some shares for me since I had just taken an investing class and thought I knew everything. Sure enough, the stock went into the teens the next year, but after all, it’s Chrysler and went on an up and down roller coaster for some time. Probably for the best my grandfather didn’t make that investment after all but for a short term trade would have been a huge winner!
    Jack @ Enwealthen recently posted…3 Biggest Neglected Investments You Haven’t MadeMy Profile

    • Hi Jack,

      That’s a great story. I could just imagine you following the stock every day, getting the “latest” quotes from a newspaper and just imagining how much could have been made had your grandfather picked up some shares. It’s tough to buy stock when a company is teetering on the edge but sometimes those are the best opportunities for some serious gains. As always, I appreciate your comment.

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