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Author: Zen1212 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 27416  
Subject: A buy and hold Lesson Date: 5/30/2004 5:25 AM
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This is a little long, but please indulge me. I originally shared this story in the Hidden Gem boards, but I decided to post it here because when I was a new investor I often felt impatience with some of the stocks I selected. I wanted to see quick gains. I dollar cost average into my portfolio so as I pondered which stock to purchase this week I kept thinking I should sell Coinstar (CSTR) since it really hasn't done much for me. But I've only had it for a few months. Well, as I was thinking about what to sell, this lesson hit me in the face.

A little background. At the school I was teaching before this last school year I used to teach Economics. As part of the class, and to make it a little more interesting, I would teach the kids about personal finance and about the stock market. Every semester I would hold a little contest. The kids would get into groups and discuss among themselves what they thought would be good companies to invest in. Now, mind you, I didn't teach them much about technical analysis. The advice was usually something like, “think about the companies you're familiar with, which do you think are businesses you would like to own.” I would have them print out a company profile, highlight a couple of numbers and let them go at it. Each team had $10,000 to invest. Once they made their selections I would set up portfolios on Yahoo! (YHOO) for each group and they would follow. Teams would get additional points for coming in first, second and third in the competition. Oh, and any team that beat my own portfolio would get some points as well, regardless of standings.

I last did this about a year and a half ago. Last week, as I was cleaning up my computer files I ran across the link to the Yahoo page that had these portfolios. I never deleted the portfolio's from the last group of kids that I did this with. I forgot and since I moved to a new school, I never took care of it. What I found blew me away and strengthened my belief in a buy and hold strategy, beyond just lip service.

Here are a couple of examples of what I found:

The best team had a concentrated portfolio of two stocks. I remember telling them that this was a risky move, but that's what they wanted to do. They invested in Best Buy (BBY) and Toys R Us (TOY). Their portfolio gained $12,347 for a 123% gain.

The group with the lowest gain invested in WalMart (WMT), Big Lots (BLI), Honda Motor (HMC), Playboy (PLA) (this was an all boys group), and Starbucks (SBUX). Their worst performer was Big Lots with -12% . However, their overall portfolio achieved a very respectable 16% growth. Most all of the other groups made somewhere around $4,000, a very nice 40% gain give or take a few hundred dollars.

How did Mr. R do? Well, I took my $10,000 and put them in Apollo Group (APOL), Career Education Corp (CECO). Boston Brewing Company (SAM) (gotta love Sam Adams) and QQQ. I chose these stocks to teach a lesson on investing in what you know. I know education, hence the first two stocks, SAM is self explanatory, and QQQ, I had talked to them about ETF's. As of last Friday, Mr. R's portfolio experienced a gain of $10,413, a gain of 104%. Only the top group did better.

Here is where the lesson came home. In my real portfolio I've owned all of the stocks that are in this mock port. I sold them long ago taking short term gains in all, except for SAM which I sold for a loss. Had I kept them, I would have experienced much better results and none of them would be in the red.

From now on I'm hanging on to the stocks I decide to invest in for a looooong time. Whther I buy them because they are recommended in some of the TMF newsletters, or I did my own research. Unless a) the story changes substantially on individual companies or b) the recommender, be it Tom, David or Mathew (my current board of advisors) decide it's time to sell. It's funny, this started with me trying to teach my students a lesson, and it boomeranged on me. Ah...life.

Roberto
A Buy and Hold Fool
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