Holding a stock over years of non-performance may be one of the most difficult parts of investing.
Active stock investors will inevitably make wrong decisions about their stocks at times. This includes the most widely respected investors, such as Warren Buffett, who has outlined several investing mistakes in his shareholder letters over the years.
However, picking a stock that loses nearly all its value is not the only type of mistake or even the costliest. Instead, the largest mistakes can happen from selling too early. This happened to me with Booking Holdings (BKNG 1.66%), then known as Priceline.com.
Today, at approximately $3,700 per share as of the time of this writing, it is the third most expensive stock trading on U.S. markets. Nonetheless, during the dot-com bust, it had reached penny stock status on a pre-split basis, and the stock’s behavior at this time proved to be both a benefit and a detriment to my investments.
My Booking Holdings investment
I have watched Booking Holdings since its March 1999 initial public offering (IPO). From a split-adjusted price of $96 per share, it reached a split-adjusted high of $990 per share in the dot-com boom. Since I also believed in this company and its business model, I regretted not buying.
Still, the dot-com bust took its toll on the stock, and by December 2000, it would fall more than 99% from that high to a split-adjusted low of just over $6 per share.
Due to the pain of my other dot-com bust losses at the time, I was not quick to act. Nonetheless, when I saw it rise to a split-adjusted $18 per share, I thought I had found a bargain with a positive catalyst and bought 166 shares at that price (1,000 shares at $3 per share pre-split) in early 2001.
By the summer of that year, Booking (née Priceline) had risen to an adjusted $48 per share, and I focused on price action instead of fundamentals. I had nearly tripled my investment in a short time and decided to lock in my gains by selling the entire position.
Booking Holdings after I sold
Admittedly, the events of the next few years appeared to confirm the “correctness” of my decision.
One event that made me feel vindicated was the stock’s 1-for-6 reverse stock split in 2003. During the dot-com bust, numerous companies enacted a reverse split to get out of penny stock status, but in nearly every instance, it delayed rather than prevented bankruptcies. Rather than perform due diligence, I simply took this as a sign that selling was the right decision.
Moreover, the stock price did not stay sustainably above $48 per share until 2007. If I had the shares back sometime over that year, my snap decision to sell in 2001 would not have hurt me. However, 2007 was the year that Booking stock finally began to take off. Even in the depths of the 2008 to 2009 financial crisis, it remained above my sell price and began to experience growth resembling its dot-com boom days.
In the end, if I had held my stock (or repurchased the shares soon after), I would hold shares of Booking Holdings worth approximately $614,000 as of this writing!
BKNG data by YCharts.
Lessons from my Booking Holdings experience
My experience with Booking Holdings shows the power of identifying a high-quality stock at a low price when the market is in chaos.
However, the more important and challenging lesson is the difficulty of holding such a stock through its tougher times with the knowledge and discipline required to stand pat. To keep Booking Holdings stock for a long enough time, I would have had to endure six years of holding the stock with a small gain and no additional growth. Additionally, the reverse stock split (a move that still does not make sense to me) would have brought about further doubts.
Had I stayed focused on the fundamentals, I might have noticed that revenues declined between 2000 and 2003 — but they were still far above 1999 levels.The business model wasn’t perfect for that troubled era, but it was already working.
Also, when revenue began growing after 2003, it increased by double-digit percentages. With the company also turning profitable in 2003, financials pointed to an eventual recovery.
Such due diligence is also essential because massive stock-price declines are often indicative of a looming bankruptcy. If in doubt about a company’s future, its financials will most likely show signs of stability when they appear.
After evaluating my very costly mistake, my advice is to stay aware of a company’s actual results, prioritizing the fundamentals over the stock’s behavior. It is only by performing such due diligence that one can tell the difference between a bargain stock and a company likely headed toward bankruptcy.