Monday, March 07, 2005


“Everybody makes mistakes.” That sentiment extends into our investing lives, and your Cheap Stocks editor is no different. That being said, today I bare my soul to readers with one of the biggest investing miscues I’ve made in recent years. The point is, you too will make mistakes. We all do. Even the great Peter Lynch has admitted to investing faux pas in his books. Lynch once wrote that out of 5 stocks that you buy, odds are one will tank, one will rise significantly, and 3 will go nowhere. And that’s from one of the greatest portfolio managers of our time.

The mistake I’m speaking of involves Hansen Natural Corp(ticker: HANS), the Corona, California based marketer and distributor of natural sodas, fruit juices, and energy drinks. I picked up shares back in 2001 in the 3 5/8 range, with the belief that one of the bigger players would ultimately take over Hansen. At the time, annual sales were in the $80 million dollar range, and the company was profitable. However, there was little excitement about Hansen. It was a $40 million market cap company, which had been around since the 1930’s, and had a nice following in California. But in my mind, the only real driver was that a larger company would want to get their hands on this small, regional player.

The stock traded sideways for a couple of years. Then in January, 2003 Hansen started to take off. When it hit the $10 range in early late 2003, I sold. There was no reason, that I could find, that this stock would go any higher. I’d made 3 times my money, and was happy. It then trended down slightly for the next couple of months, and I was proud of the trade. I know, once you sell a stock, you should not look back. But I felt vindicated…for a while.

After hitting the mid 7’s in January 2004, the stock went on a wild ride, hitting $47.49 in February 2005. Hansen’s sales had exploded with the introduction of new products, and its earnings followed suit. Third quarter 2004 sales, for instance were up 58 percent, from $33.3 million to $52.6 million, while earnings per share jumped 158 percent, from $.19 to $.49. When year end numbers are in, Hansen could well hit $175 million in sales for 2004. This is a far different company then the one I purchased in 2001. Currently trading at 37 times earnings, its current market cap is nearly $470 million. It was a $40 million company when I bought in.

What did I learn from all of this? I’m still not sure. Maybe I should have had a trailing stop on the shares, which could have been raised periodically as the share price climbed toward the stratosphere. Maybe I really don’t have the stomach to be a growth investor. Hey, wait a second. What am I whining about? I did triple my money. And left a brand new 2005 red Mazda Miata on the table.

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