What I learned from my first stock – a trendy U.S. retailer

MY FIRST STOCK Dennis Mitchell, chief executive officer and chief investment officer at Starlight Capital in Toronto First stock: Abercrombie & Fitch Co. (ANF-N)

Around my 25th birthday in 2000, I purchased some shares of Abercrombie & Fitch Co. at about US$9.50. By this time, I had my undergraduate degree in business, was studying for CFA Level 1 and had read more than a dozen books about Warren Buffett and investing.

I had done extensive research on several companies, but I settled on Abercrombie because I understood the business, my friends wore their clothes and it had sold off the most among the potential stocks I was considering buying.

How it felt when you made the purchase:

I was elated to finally take the plunge and buy a stock. I had invested in some mutual funds right out of university, but this was different, and I was excited to put all of my work and study to the test. That lasted for probably 20 minutes, after which abject terror set in as I couldn’t afford to lose the money! I checked the stock price every hour and revisited my analysis almost every day.

What happened to the stock shortly after you bought it – and since?

Mercifully, the stock rose steadily after I bought it and reduced some of my anxiety. A few months later, I went on vacation and couldn’t check the stock price for a week. When I got back, the stock was in the mid-teens, and despite some sharp pullbacks, it moved up consistently for a year. I sold it for about US$35 in the middle of 2001.

This was fortunate because I needed that money to lease a minivan and buy a house for my growing family.

While I missed the peak at around US$80 in 2007, before the global financial crisis, the stock is back to the mid-teens, and investors have been exposed to significant volatility along the way.

Lessons learned from the experience that shaped how you invest:

This successful trade hammered home several lessons to me: First, don’t invest in stocks over short periods of time. While this trade worked, I don’t believe any of the other potential trades worked over that period, so I was lucky that I picked Abercrombie.

Second, there is no substitute for due diligence. My analysis was what kept me in the stock initially and then later after sharp pullbacks.

Finally, patience is key. If I had purchased the stock two months earlier, I would likely have sold at a loss and been discouraged by my first foray into stock investing. I waited to finish my analysis and for the margin of safety to build and was rewarded for that patience. Those lessons still inform my professional investment decisions to this day.

What advice would you give someone today buying their first stock?

If you can’t do as much homework on a stock as you would to plan a vacation or buy a car, then stick to low-cost index funds. The stock market appreciates approximately 75 per cent of the time so there is nothing wrong with letting it do all the heavy lifting for you.

If you are going to buy stocks, start with money you can afford to lose and invest in four or five well-researched, thoroughly understood, high-quality companies. Average into these positions over a few days or weeks to reduce some of your market risk – and then trust your analysis.

I recommend companies with a track record of raising their dividends as they have historically outperformed the market, with less volatility.