The Stock That Got Away

NEW YORK ( TheStreet) -- Talk to any investor, and they'll likely have a story about "the one that got away." It could be the stock that they owned and sold a bit too early, or perhaps the one that they "were going to buy" but didn't.

Invariably, these stories end with regret that the investor missed a trade that could have made a fortune.

But in my experience, investors rarely reminisce about the stock they almost bought that later tanked or went bankrupt.

Avoiding those big mistakes is a victory, but such stories don't have the "wow" factor that the "I almost bought Microsoft ( MSFT) back in 1986" stories carry.

The fact is that landing the big fish often requires a significant time horizon, and a level of patience that few investors still possess. Unfortunately, we are told by many of the pundits that "buy and hold" is no longer effective, and that such "old school" investment tactics have no place in the modern era. (I disagree, but we'll save that argument for another day.)

In early 2002, shares of Apple ( AAPL) were all but shunned. Revenue had fallen by nearly one-third in 2001, the company was in the red, and there was little if any excitement about the name. This was also a very difficult time for our country; we were but a few months removed from the devastating 9/11 attacks, the economy was suffering and fear was running rampant.

But there was something very curious about Apple in those days. The company had ended 2011 with more than $4.3 billion in cash and short-term investments, or more than $12 per share.

Debt, at about $300 million, was not an issue. In those days, Apple was selling for less than the cash and short-term investments on its books. As a value investor, I was intrigued by that.

I was also curious about the small, shiny white box that a colleague was bringing to work with him in those days, which turned out to be the first-generation iPod. It held an inordinately large number of songs, and the sound quality was great. But I failed to put two and two together. Could have, should have, would have, but didn't. AAPL Cash and ST Investments Chart AAPL Cash and ST Investments data by YCharts

Interestingly, Apple traded sideways for the next couple of years. By 2006, it hit the $70 range, and it was near $200 by the end of 2007. During the "market madness" of late 2008 and early 2009, shares fell below $100, but since then, they have not really looked back on the run to $700 and world domination. AAPL Chart AAPL data by YCharts

I however, have looked back, because it is important to analyze investment successes and mistakes. In this case, I had no idea how big the iPod would become, and no idea about the level of innovation in other products that Apple would bring to the market. I understood that the company was trading for less than cash, but for whatever reason, that was not enough at the time.

If I had purchased the shares when they were trading for less than the company's cash, I wonder how long I would have actually held them. Not long enough, I suspect. Even a well-placed trailing stop-loss, adjusted as shares rose, would probably not have done the trick.

All of this leads me to a question. What names am I currently shunning that have Apple-like potential? Facebook ( FB)? I don't think so. Here's the difference, and part of the lesson learned: Expectations for Apple in the early 2000s were low, and this was priced into the stock. I can't say the same about Facebook.

At the time of publication, Heller had no positions in stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.