My plan was to take you back to 1996 -- when the Dow surpassed the 6,000 mark for the first time ever -- to a Charlie Rose roundtable that included Jim Cramer and Motley Fool co-founders David and Tom Gardner.
Another crazy call by Cramer
Back then,
Cramer argued that the Dow would soar all the way to 7,500 -- despite
the fact that it had already more than doubled in just five years and
shares of behemoths like McDonald's (NYSE: MCD), General Electric (NYSE: GE), and Procter & Gamble (NYSE: PG) had risen more than 100% from their 1991 lows.
Meanwhile, David and Tom took a much different approach, telling
viewers, "We don't care where the market is headed." They explained
that they were focused on finding the best eight or nine stocks to grow
your wealth over the long haul. Basically, they searched for stocks
that:
- Were underfollowed on Wall Street.
- Had a net profit margin of at least 10%.
- Had earnings and sales growth greater than 25%.
- Had insider holdings of 15% or more.
My article went on to show how, early on, this approach led them to America Online, Amazon.com, and eBay (Nasdaq: EBAY), among others -- and landed them on the covers of everything from Fortune to Newsweek. But I also thought it fair to point out that it was hard not to get rich in that market.
After all, Cramer was right on the money. The Dow soared to far more
than 9,000 in 1998, and reached a whopping 11,500 less than two years
after that -- which is exactly where it stood on Aug. 29, 2008, when I
submitted my article.
Could my timing be any worse?
Sure, we
were in the middle of a fierce bear market -- but I pointed out that of
the 24 stocks that David and Tom recommended to their Motley Fool Stock Advisor subscribers during the last bear market ...
- Twenty-three were (or had been sold) in positive territory.
- Eleven had more than doubled.
- Five were up more than 400%.
I even added, "I bring this up merely to illustrate that despite
what all the talking heads on TV are telling you, you absolutely should
be buying great companies right now -- while they are still selling at
massive discounts."
I'd almost jokingly insinuated that the Dow could drop to 7,500 ...
and then, within six weeks, we were a mere 200 points from seeing it do
just that.
And here we are now
Even after the recent seesaw rally, I'm still sitting on losses in one-time highfliers such as Freeport-McMoRan (NYSE: FCX) and Transocean (NYSE: RIG). And I'm left with the same questions that you probably have, including "Have we finally seen the market bottom?" and "Should I just sell everything and move on?"
After having been so thoroughly humbled by this market, I won't go
so far as to suggest that you follow Warren Buffett's lead to be greedy when others are fearful. And I won't even preach what my fellow Fools and I are practicing.
Instead, I'll simply share the advice that Tom Gardner recently gave us at our companywide "huddle."
How you can turn losses into a huge win
Tom
pointed out that when things are going well, most of us spend all of
our time high-fiving and celebrating. When things go sour, we turn to
sulking, worrying, and even panicking.
Meanwhile, when the going gets tough for the toughest, smartest, and
most successful people out there ... they learn from it. And that's
what sets them apart.
Case in point: Benjamin Graham
He went
bankrupt three separate times as an investor. But each time, he
documented and studied his failures, and he was eventually able to
impart this investment wisdom to countless others -- including Warren
Buffett, who in turn learned from his own mistakes and failures.
Early in Buffett's career, he mistakenly believed he could save a
failing textile mill. After being forced to liquidate its textile
operations, Buffett learned to pay up for quality. He turned that
failing company into a $140 billion legend.
Another great example is Pixar's John Lasseter. After he graduated from college, Disney
hired him to captain its Jungle Cruise ride at Disneyland. Later, the
company gave him a shot at being an animator, and he quickly recognized
the ability of new computer technologies to revolutionize animation.
But Disney was so unimpressed with his first feature that it fired
him on the spot. So Lasseter went back to the drawing board. After
fine-tuning his process, he moved on to the company that would become
Pixar, where he's won two Academy Awards and churned out a string of
blockbuster hits that included Toy Story, A Bug's Life, and Cars.
Oh, and let's not forget -- he and Steve Jobs later sold Pixar to Disney for a cool $7.4 billion.
Now it's your turn
At the end of last
August, I never would have imagined that we would see the Dow hit 7,500
-- much less almost hit 6,500. But now I know that anything is
possible. And I think that rather than celebrating the market's recent
run-up, the best thing we can do is focus on learning from our past
mistakes, so that we can make better investments going forward.
I've already learned that companies like wireless broadband provider Clearwire
-- which bleed cash quarter after quarter, and are years away from
profitability -- may not be the best places for my money, no matter how
intriguing their stories are.
I've also learned that I should avoid investing in companies with
business models that are a bit too complex for me to fully understand.
That's why I probably won't be buying shares of NYSE Euronext (NYSE: NYX) anytime soon -- no matter how cheap they get.
Now, I challenge you to use the comment function below to tell all
of us what you've learned over the past year, and how you will use that
information to make yourself a better investor. Feel free to chime in
with stocks you think we should take a look at -- or avoid altogether
-- as well.
© 2009 UCLICK, L.L.C
Post new comment