Size Doesn’t Matter: How a Middle Income Newbie Investor Rolled Up a 350% Return with Chipotle
Ken is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When it comes to investing, I have a major pet peeve -- I cannot stand actively managed mutual funds. Research shows time and again the majority of active funds underperform the S&P 500 while charging a fee to do so.
Once upon a time, I was a victim of the funds. I thought investing was a dark art that was best left to Harvard MBAs with insider access and a super computer that could sort out the head-and-shoulders patterns from double-tops. I thought a (then) 20-something kid with a modest income and a couple spare nickels rattling around in his pocket would do best by trying to save in a 401(k) and select funds with growthy or old-money sounding names (Yes – “Growthy” is an official investing term). Something like “The Vanderbilt Ivory Emerging Growth Strategic Wealth Strategy Science Fund” would light my investing fire. That old Burton Malkiel analogy about a monkey throwing darts at The Wall Street Journal to pick ticker symbols – well, that about summed up my investing skill. Needless to say, my returns were less than inspiring.
Enter the Jester
Luckily, a few years ago, I found The Motley Fool. Anybody who hangs around the Stock Advisor or Rule Breakers member discussion boards for a while picks up advice about the minimum you need for an investment: The size of your investment should be large enough to make trading fees less than 2%. With discount brokerages offering trades for $5, a minimum investment only needs to be around $250. My time with the Fool started a short 5 years ago and the results are in. Thanks to the monthly recommendations provided by the Fool’s member services and (more importantly) the insights, coaching, and encouragement from discussion board members, my portfolio is soundly beating the market.
The other day, I trimmed back on my position in Chipotle Mexican Grill (NYSE: CMG) and was taken aback by how a modest investment multiplied into a nice pile of dough ... or better yet, tortillas. On the advice of Rule Breakers and with the encouragement of discussion board members, I purchased only 4 shares of Chipotle on Oct. 26, 2010, for $82.89. That modest $331.56 investment was worth over $1,500 when I sold it a couple weeks ago. I still hold the shares I purchased for $68.25. Certainly, I’ve had my fair share of losers, but other small dollar investments turned into over a half dozen multi-baggers in companies like Under Armour (NYSE: UA), Whole Foods (NASDAQ: WFM), and Apple (NASDAQ: AAPL), more than making up for losers like Nintendo (NASDAQOTH: NTDOY.PK), which I bought in 2007 and am down nearly 70%.
In the world of money, it is easy to become angry and cynical. Every year, we hear a new scandal where mega-banks are cutting corners and Madoffs are playing fast and loose with people’s lives. It wouldn’t take much built up cynicism to read this article and think of it as little more than a hyped up advertisement for The Motley Fool.
I understand that skepticism, but I wrote this article to pay-it-forward and pass down the best investment tip I ever received to another 20-something, or 30-, 40-, 50-, 60-, 70-something (it is never too late to start, right?) with a couple loose nickels rattling around and a feeling that must be a better way than paying high-priced commissions to financial advisors and mutual fund companies that continue to underperform the S&P 500. Do yourself a favor and take a free trial on the Motley Fool’s premium Stock Advisor investment service. If you find the recommendations and discussion boards as rewarding as I have, you can thank me later. If Stock Advisor is not for you, then all you lost was a month hanging out online with some of the sharpest investment minds I know of. Compared to paying the Vanderbilt Ivory Emerging Growth Strategic Wealth Strategy Science funds of the world a usurious commission, this is no brainer.
And even if you don't take a free trial, I'll throw in this cheap lesson just for spending the time to read this article: If your stock takes a sudden and unexpected nose dive, don't freak out! Don't you dare Sell! Sell! Sell! Instead, take some time, do some thinking, and bounce your ideas off of the smartest people you know.
I mentioned above that I have done well investing in Apple. When I bought my first share (that is right -- only 1 share) it didn't look like I had a future multi-bagger under my belt. I bought that share for $176.80 on May 1, 2008. Little did I know that the Great Recession was right around the corner. Over the next year, I would see the price of my measly 1 share of Apple stock get cut in half. Thankfully, Foolish board members helped me keep my wits and encouraged me to consider doing the unthinkable -- to buy more shares even though the recession seemed like it was getting worse every day. I was lucky enough to follow their advice and bought a couple more shares in the mid-$80 range. As every investor knows, my original $176.80 investment rebounded to give me an awesome return. Even better, because I had the confidence that comes from the steady long-vision advice of Stock Advisor Fools, I continue to hold the shares I bought in the mid-$80s, which returned over 600% and counting!
Sometimes these things are better expressed visually. Check out the chart below and then get yourself over to Stock Advisor to see what long-term bargains they pick out in the coming months as the European crisis spreads around the globe.
BoiseKen owns shares of Apple, Under Armour, Whole Foods, Nintendo, and Chipotle Mexican Grill. The Motley Fool owns shares of Apple, Chipotle Mexican Grill, and Under Armour. Motley Fool newsletter services recommend Apple, Chipotle Mexican Grill,Whole Foods, Nintendo, and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.