Wednesday, July 02, 2014

selling too soon

For growth investors, a cardinal sin is missing a successful growth company, such as Wal-Mart, Microsoft, or Apple, early on. But giving up on one too soon, due to a short-term concern, can be almost as painful.

Jack Laporte, who managed the small-cap New Horizons Fund for 22 years and has more than three decades of investment experience, recalls investing in Starbucks when the company went public in 1992. He sold it about two years later due to concerns about a spike in coffee costs cutting into profits. It was a good call at the time because the costs did rise and the stock stagnated for months.

While Mr. Laporte made a nice gain, the company’s later success made him regret the sale. He calculated that by 2006 the fund’s original position in Starbucks would have been worth an Benefiting From Mistakes Even the Pros Have Made additional $200 million.

“I outsmarted myself by trying to trade around a unique company, and that was a very expensive lesson,” he says. “It’s hard enough to find truly great companies like Starbucks with open-ended growth opportunities. When you find them, don’t get caught up in short-term valuation issues if they are growing rapidly.”

-- T. Rowe Price Report, Fall 2011

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