My Biggest Investing Mistake and What I Learned From It

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Investors occasionally make mistakes; that’s just the nature of the beast. The important thing is to learn from them. Fool.com contributor Danny Vena and Fool analyst Emily Flippen share their costliest investing lessons, so you can profit from their blunders. Avoiding these same mistakes can supercharge your portfolio’s performance, particularly over the long term.

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Jason Hall: Danny, give me your most costly investing mistake and what you learned, in a minute or less?

Danny Vena: All right. I’m going to try to speed this up. So back in August of 2007, I bought my very first shares as an investment. I bought shares of Netflix (NASDAQ:NFLX), for a split adjusted cost of $2.44. Now, mind you, I heard a lot of people who I thought were smarter than me say, “Take some money off the table, play with the house’s money.” I didn’t get that that wasn’t wise at the time. Fast forward to March of 2009, I sold half of my Netflix shares and patted myself on the back, because gains of 138 percent, and I’m thinking, I did this awesome job. Now, historically, those 10 shares of Netflix that I sold were actually subject to a 7:1 stock split in July of 2015, so we’re actually talking seventy shares now, not 10. Currently, those shares are selling for $540 a piece, up 90 times. I’m patting myself on the back for an impressive $242 gains on $175 investment. However, by selling way too soon, I gave up over $37,000, and counting, in gains. Let this be a lesson, fools. Don’t cut your flowers, cut your weeds.

Jason Hall: It’s not house money, It’s your money. It’s companies, not money. You own companies. Emily.

Danny Vena: Own shares in companies.

Jason Hall: Lay it on us, Emily. You got something interesting for us. I think a couple of people mentioned Peloton (NASDAQ:PTON) in the chats.

Emily Flippen: Yeah, I think I’m going to mention, maybe, it’s one of my bigger investing mistakes. It’s a discount the power of brands. You can apply it to companies like Peloton, that you may not believe in the business model, but you can’t deny that have a powerful brand. In this case, I’m going to use Yeti (NYSE:YETI) as an example, and actually going to share screens while I talk about this company, because this is a company that we’ve looked back in December 2018, one-month after the company went public, and I would report on Yeti. Here is the report. I have highlighted some things. This is for our investing team meeting. At the end of the meeting, everybody ranks the company on a scale of one to five about how much they like it. Yeti was, and it’s still is today, the single worst performing company that anybody has brought. I think they had something around two stars out of five.

Here’s what I saw. I saw a company that had products that were having a lot of competition. The entire executive team had turned over in the past two years. They were selling a product that was so similar to other competitive products, they’ve actually had to bring legal action against their competitors. I saw the fact that they are controlled by a PE firm, milking them for money. I saw the fact that for 2016 to 2017, prior to them going public, their sales had decreased 22 percent year-over-year. I saw the fact that they had rise in competitions, declining gross margins as they’ve diversified their product line, and I laughed about how comical it was that they are getting ripped off by their competitors. I even noted that they were hugely in debt using all the money from the IPO proceeds to fund their debt. There was nothing I liked about this company. I thought it was a dumpster fire.

What’s really interesting, I highlighted here in green, is what I missed. I mentioned in the report last year, direct to consumer sales accounted for 30 percent of their sales, up from 8 percent in 2015. That is the brand, and today that is 45 percent of sales. The stock has gone up around 250 percent since I wrote these reports, all because I recognized these kind of yellow flags, but I didn’t recognize the one factor that actually mattered in this case, which was the fact that Yeti had a really compelling, powerful brand.