In listening to my fellow Fools, I decided that I was going to let my winners run, meaning that I wasn’t going to sell a great growth stock again, unless the fundamentals really start to deteriorate. That’s served me well and I’m proud to say that’s led to a near 1,000% gain in shares of pharmacy benefits manager Catamaran Corp (USA) (NASDAQ:CTRX) and high-triple-digit gains in a number of other great growth stocks. The lesson I’ve learned is that growth is great, but you have to hold on to it.
Options give you, well, options
Like many investors I’ve made my share of mistakes, but few as costly as those I’ve made with options. Like many eager option beginners I was drawn to the outsized gains possible by purchasing calls. More often than not I lost every penny.
More than anything I wanted to learn how to use options prudently, and I discovered that writing options to buy stocks cheaper or sell them dearer led to much more frequent profits. Today you’ll often find me writing puts on stocks like Heckmann Corporation (NYSE:HEK) or Seadrill Ltd (NYSE:SDRL) in order to buy shares cheaper. I want to own a piece of Heckmann Corporation (NYSE:HEK)’s business because I can get behind its model, which is dedicated to solving the environmental issues surrounding fracking. Meanwhile, Seadrill Ltd (NYSE:SDRL) is perfectly positioned to benefit from the amazing growth of deepwater drilling.
While I think both will outperform over the long term, neither traded at prices I wanted to pay, and having been through my share of corrections over the years, it wouldn’t have surprised me to see shares fall the day after I bought them. In both cases I chose to write puts in an effort to buy shares cheaper, or at least earn income while trying. The lesson I’ve learned with the Fool’s help over the years is that options really do give you options when buying a stock.
Final foolish thoughts
It’s taken a while, but I’ve discovered the type of investor I am. I’ve learned that for me it’s hard to hold on to growth and not take some money off the table, that’s why I prefer to earn healthy income from dividends and options so I’m not tempted to cash in too early on a great growth stock. It’s been quite the experience but one that’s put me on solid financial footing.
The article 3 Lessons From a Decade of Foolish Investing originally appeared on Fool.com is written by Matt DiLallo.
Motley Fool contributor Matt DiLallo owns shares of Enterprise Products Partners L.P., LINN Energy, LLC, and Heckmann, and has the following options: Short Jul 2013 $35 Puts on Seadrill and Short Jun 2013 $4 Puts on Heckmann. The Motley Fool recommends Enterprise Products Partners L.P. and Seadrill. The Motley Fool owns shares of Heckmann and Seadrill and has the following options: Long Jan 2014 $4 Calls on Heckmann and Short Jan 2014 $3 Puts on Heckmann.
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