Dumb Financial Decisions: Not Making The Buy Decision

FIREOver the past quarter century, I have bought and sold dozens of individual stocks in my brokerage account and through Dividend Reinvestment Plans.

Some of my trades have been big winners.

And some have been big losers.

But thinking back over a period of decades, even the biggest winners and the biggest losers tend to fade from my memory.

The trades I actually tend to remember the most are the ones I didn’t make.

I think back to a discussion I had with some colleagues over 13 years ago about Apple Inc. The stock price had climbed by about 50% over the prior few months, and although we all thought the company was poised to continue doing well with its revolutionary iPods and popular computers, the price seemed to have increased too much too fast. We all thought it was best to wait for the inevitable dip and then buy the stock at a more reasonable valuation, even though we all loved the company’s products and believed it had a great future.

Of course, the price of Apple stock has continued on an almost uninterrupted trajectory higher since then. Apple has introduced products like the iPhone and iPad that put the iPod to shame, become a dominant force in digital music, and is trying to change how we pay for almost everything.

The end result is a stock price that is now more than 20 times higher than it was when my co-workers and I thought Apple was too expensive. While I certainly own my share of Apple through index and other mutual funds, I have never actually gotten around to purchasing the individual stock.

Which is something I think about a lot more often than the stocks I have purchased that have doubled, tripled, or quintupled in price. I honestly think about not buying Apple even more than I think about the occasional tenbagger I have owned!




More recently, last summer I wrote here at Retiring On My Terms about our experience shopping at a Sears store, and the financial independence lessons learned from that failing retailer, which finally filed for bankruptcy earlier this month.

In that post, I compared Sears to another well-known company: Amazon.com Inc.

I’ve known about Amazon.com since the late 1990s, when a co-worker talked incessantly about the wide variety of books he was able to purchase there.

I didn’t become an Amazon.com customer until 2004, when I moved to the big city to begin a new career. Having a wide variety of items shipped right to my building by Amazon proved to be a much more attractive option than schlepping all over the city to purchase them myself!

Given the volume of items I was purchasing from Amazon.com, we became Amazon Prime members shortly after that service was introduced, and continue to be Amazon Prime members today.

Early Retirement
The ROMT family doesn’t spend much time shopping at places like this!

Today, our family spends more at Amazon.com than we do at any other retailer. We are not generally big shoppers, but when we need to make a purchase for ourselves or others, Amazon.com is typically the first place we look.

Spending at Amazon.com is one of the largest expenses we have on a yearly basis, behind only things like taxes, groceries, healthcare, and insurance (we paid off our mortgage last year, which got rid of that large bill, and have installed solar panels on our roof, which has cut our monthly electric bill by nearly 85%).

The point is, I’ve known about Amazon.com for close to two decades, been a loyal customer for most of that time, and spent many thousands of dollars on their website over the years.

It’s also a stock I’ve always been interested in purchasing, but never gotten around to buying, because the valuation always seemed a bit too high.

As you may have guessed, the price of Amazon.com stock is up around 40 times since I first became a customer of the company!

And as with Apple, I regret not having purchased Amazon.com stock more than I regret any of the stocks I have purchased that I ended up selling after losing 10%, 25%, 50% or more!

So when prices for tech stocks in general, and Amazon.com in particular, started falling earlier this month, I made the decision to finally purchase shares of AMZN, even though its valuation by most traditional metrics still seemed lofty.

Amazon.com’s price has fallen by another 8% since I bought it, following disappointing results last week, but I’m glad I finally own the name. It’s a company that has changed – and I believe will continue to change – how consumers around the world make purchase decisions.

I know I’ve missed out on the massive move higher in AMZN that has occurred over the past decade. But over time, I think the stock may still perform well relative to the broader market.

More importantly, even if it doesn’t, at least I finally took a shot and made the buy decision, rather than sitting on the sidelines and watching. I know from my own personal experience that I regret not making the buy decision more than I regret making a buy decision that turns out to be incorrect.

Just to be clear, there are plenty of stocks that have delivered incredible returns in recent years – like salesforce.com, Netflix, and Facebook – that in retrospect I certainly wish I had owned. But since I never spent a lot of time considering an investment in those companies, I don’t lose any sleep thinking about what might have been.

Traditional behavioral finance suggests most people are loss averse when making investment decisions – that is, most of us would rather not lose $5 than gain $5.

I think I am probably more accepting of losses than most, but what really bothers me is not giving myself the shot on goal to potentially generate great returns. Of course, it’s interesting I only seem to remember the companies I didn’t invest in that delivered exceptional returns, and not the companies I thought about investing in that turned out to be losers!

Your results, of course, may vary!

My personal experiences are not a recommendation or opinion to buy, sell, or hold shares of any particular stock or other investment. Readers should conduct their own research and consult with trusted and experienced financial advisors before making any investment decisions, and recognize that past investment performance is no guarantee of future price appreciation.

Are there any individual stocks you regret purchasing (or not purchasing)? 

 




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