Yesterday when I was checking my stocks, I was pleasantly surprised when I saw one of my stocks was up nearly 20% for the day. Not only that, but the stock had climbed nearly 60% since I initially bought it in September of 2013.
The stock that I’m referring to is Williams Company (WMB). When I bought the stock on September 5, 2013 I paid $35.10 for 15 shares. Yesterday (June 18, 2014) I had sold the 15 shares at $55.90 per share. This resulted in a 59.3% return on this stock in only nine months!
Why did I buy WMB in the first place?
When I bought the stock in the first place, I was looking for a high dividend paying stock. When I found WMB it was paying out dividends around 4.5%.
In addition, the stock seemed to be trading at a low price at the time. It seemed like a no brainer to buy this stock. My thinking was flawed, which I will get to in a minute. Regardless, I bought 15 shares at $35.10 and watched the stocks grow over the coming months.
Why did I sell WMB yesterday?
I sold WMB for a number of reasons, the most important being to lock in my gains.
I made over $310 or about 59% on my investment, and I didn’t want to lose out on locking in that money for good.
Currently, WMB seems to be overvalued. The stock has a PE ratio around 96, which is ridiculously high when compared to similar companies in its industry. Now seemed to be a good time to get rid of a stock which will probably drop off in a matter of time.
The flaw in my thinking
When I bought WMB I was under the impression that I was getting the stock at a reasonable price. The stock was trading close to its 52 week low. Truth is, the stock wasn’t really that cheap when looking at its PE ratio.
While the PE ratio was on par with other companies in WMB’s industry, that was not really a sign that it was a stock to buy. I didn’t do much research before jumping into this stock. Honestly, I got lucky that it shot up the way it did.
I held on and reaped the benefits and got out on my own terms
I had actually though about selling WMB on multiple occasions. The reason I held on was because the stock’s value was continually increasing.
I realized that I needed to sell the moment the stock jumped 20% in one day and I made over 50% in less than a year. Sure, the stock could keep going up but I don’t want to take that risk.
Take home message
When it comes to investing you need to recognize when you are lucky and when you were actually skilled. Too many people think they have the secret formula to making money in the stock market.
At the end of the day it’s safe to say that I got lucky with this stock. I invested on a flawed premised and I am grateful that I made the money that I did, but I don’t feel like it was because of some skillful move.