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No. of Recommendations: 13
Alright, I'm going to share what I did wrong with this one in the hopes that someone else learns. Hopefully I learned a lesson, too.

After last quarter's earnings, the stock price rose dramatically to the $55 level or so. I looked at it, ran a discounted earnings calculation and figured that the company would have to grow at something like 30% - 35% a year for five years and then around 15% to 20% a year for the next five to justify the current price (using a 12% discount rate and 3% terminal growth rate). To get the five year growth rate back down to what analysts were predicting (20% or so if I remember right), the discount rate had to be reduced to 7%. That's well below my minimum desired return rate.

So I sold, both out of my own account (Roth IRA, thankfully) and out of an account I share jointly with my father-in-law.

And I watched the price go up

and up

and up

until it was sitting around $75. As the most recent earnings neared, the price continued to go up

and up

until it was over $80. Now with another "beat the Street" quarter, the price is up another $3 or so after hours and I fully expect the price to continue to go up.

You'd think I would have learned this lesson quite a while ago when I did something similar with Cheesecake Factory (CAKE), but that was where it had only reached my idea of intrinsic value.

But, no...

With this one, I waited until I thought for sure this stock price couldn't go any higher because it was ridiculously overvalued. (See, I did learn that lesson from CAKE!)

And what did NILE do? Totally ignore me, that's what!


Tom G has written that he regrets his early sale of Whole Foods Market (WFMI) in Stock Advisor and watched it climb away before his brother re-recommended it for the same newsletter. Now I definitely know how he feels and it isn't fun.

At. All.

So, my advice to everyone here, including myself, is this. When you feel that a stock is getting over valued, DON'T SELL! Instead, keep a careful eye on it and be happy that Mr. Market continues to offer you a higher and higher price for it. As long as it continues to climb, be happy. And if it is whacked back down to size by a bad quarter, you'll probably get what you would have gotten if you had sold the first time you got nervous about the over valuation, or even a bit more (though with a chance of a bit less). And if it doesn't, you get a lot more money out of it before the price just screams "sell now!" I would have been a lot happier if I had sold at $75 before its current move up to the mid-$80s than I am for having sold some $30 ago.

(Not so cheery) Cheers,
Jim
(Discl: long CAKE, yes I got back in)
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