My Biggest Investing Mistake of 2024 Wasn't What You'd Expect, but It's a Mistake I Won't Be Repeating Next Year

Source The Motley Fool

The S&P 500 goes up about 10% annually on average. But 2024 has been an above-average year. As of this writing, the index has jumped almost 28% year to date. In short, investors didn't need to do anything special to make some serious money. Simply buying an S&P 500 index fund to perform in line with the market benchmark would have been a great move.

It's a move I personally didn't make. I prefer to select individual stocks rather than go with simple index funds. But opting for this approach, I open myself up to the potential for more mistakes. So while I made some good investing decisions in 2024, I also made some pretty costly ones and have underperformed the S&P 500 this year as a result.

In August, I bought shares of Celsius Holdings (NASDAQ: CELH). I like the company's growth, improving profit margins, and impressive balance sheet that boasts over $900 million in cash and zero debt. I believe the business can grow for many years to come. And when I invested, shares had already dropped more than 50% to what I thought was a reasonable valuation. To me, it looked like a great time to buy.

But Celsius stock is down another 30% since I bought it -- in other words, my timing wasn't great. Granted, it's been only a few months, and I plan to hold this stock for years. Therefore, it can easily bounce back with time. However, I still don't like being down 30% on any position, regardless of how long I've held it.

As discouraging as my investment in Celsius stock has been so far, it isn't even close to being my biggest mistake of 2024. As it turns out, it's not what I bought that was the problem. On the contrary, the problem is what I sold.

Repeat after me: Don't sell your winners!

Investors must appreciate the power of compounding returns. Consider that an investment has to go up 100% for someone to double their money. But another 100% gain from there quadruples the original investment, and so on. The longer one allows compounding to do its work, the greater the potential impact.

This is why investing legend Charlie Munger once said, "The first rule of compounding is to never interrupt it unnecessarily."

I'm sorry to admit it, but I unnecessarily interrupted compounding in 2024.

In Dec. 2019, I purchased shares of United Rentals (NYSE: URI). Then, in May 2020, I bought shares of Axon Enterprise (NASDAQ: AXON). These were large positions in my portfolio when I bought them. Over the years, they grew into my second- and third-largest holdings with Axon being the more valuable of the two.

In 2022, I watched huge gains in my portfolio get completely erased as valuations dropped during the bear market. Fast-forward to Feb. 2024, and the market had recovered, but I was again fretting over the valuations of both Axon and United Rentals. Consequently, I sold out of both positions believing they were overvalued at the time and fearing a repeat of 2022.

Investors can learn the wrong lesson from their mistakes, and it seems that's exactly what I did with the 2022 market pullback. I sold both Axon and United Rentals out of fear of another downturn, but since I did so, they've climbed about 110% and 30%, respectively, as of this writing. If I had held onto those stocks, I would be outperforming the S&P 500 this year.

One of the main points of The Motley Fool's investment philosophy is to "Let your portfolio's winners keep winning." This idea wasn't plucked out of thin air. On the contrary, holding winners and selling losers is a well-recognized, effective approach. As investing great Peter Lynch wrote, "You won't improve results by pulling out the flowers and watering the weeds."

My plan for 2025

I've been investing for a long time and know this lesson in my head. But my head doesn't always make the decisions -- sometimes, my heart does. But this coming year, I'll endeavor to better control my emotions and hold on to my winners.

This includes my current largest position, MercadoLibre (NASDAQ: MELI). Fortunately, I believe this task will be a little easier. Unlike Axon and United Rentals, which posed valuation concerns, MercadoLibre trades at a reasonable 5.5 times sales. For a business that's profitably grown like MercadoLibre with so much opportunity ahead of it, that's a bargain, in my opinion.

MELI Revenue (TTM) Chart

Data by YCharts. TTM = trailing 12 months.

Then again, even if it's not valuation, I'm sure something else will come along in the next 12 months that will spook me. But MercadoLibre is serving a market in Latin America that's poised for great e-commerce growth and fintech adoption going forward. That's a stock I want to hold on to for the long term, and I'll avoid interrupting the compounding process this next time around the sun.

Don’t miss this second chance at a potentially lucrative opportunity

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*Stock Advisor returns as of December 2, 2024

Jon Quast has positions in Celsius and MercadoLibre. The Motley Fool has positions in and recommends Axon Enterprise, Celsius, and MercadoLibre. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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