3 Lessons From a Decade of Foolish Investing

It's hard to believe, for me at least, that I've been a Motley Fool member for a decade now. Some of you might have passed that milestone a while ago while others might be just getting to know us here at the Fool. Either way, I thought I would reflect back at three of the most important lessons I've learned from hanging around other Foolish investors these past 10 years.

Dividends are dynamicWhen I first discovered the Fool a decade ago I was a broke grad school student looking to get my financial future started on the right foot. I didn't have a lot to invest in those days; in fact, my first stock purchase was $50 worth of Sun Microsystems. While that purchase didn't end up making me as rich as I thought it would, it started me on a very profitable journey.

It was in sitting and watching Sun do nothing that the Fool taught me about the wonderful world of dividend-paying stocks. Not making a whole lot of money at the time, I loved the idea that my money could make money for me. I got hooked on buying dividend-paying stocks and seeing the income credited to my account every few months.

Two of my early investments have really stood out in my mind. Early on in my income investing days I discovered the dynamically high-yielding MLPs that could be found in the energy sector. After much research I chose midstream operator Enterprise Products Partners (NYSE: EPD) , and not that long after found oil and gas producer LINN Energy (NASDAQ: LINE) . Both paid very well, and in listening to the management teams on conference calls I felt like they could be trusted. Best of all, each had a solid business plan that even I could understand.

Both companies have produced excellent returns for me over the years by consistently raising distributions and prudently growing. I have little doubt that both companies will still be in my portfolio a decade from now having provided substantial income along the way. The lesson here is that holding dividend payers for the long term is a winning strategy.

Growth is greatWhile I love income, I'm still a young investor and need to grow my portfolio if I ever desire to retire. Finding great growth stocks and holding them despite the pull to cash out has been a really interesting endeavor. I don't want to count how many great growth stocks I've owned but sold way too early.

I, like many investors, have an Apple story. I watched and waited and finally couldn't take it anymore so I bought shares at $90 each. I promptly sold a week or so later when those shares hit $100. It's one of many stories where I sold a great stock way too early and didn't earn as much as I should have.

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 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, optionsLike 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 (NYSE: NES) or Seadrill (NYSE: SDRL) in order to buy shares cheaper. I want to own a piece of Heckmann's business because I can get behind its model, which is dedicated to solving the environmental issues surrounding fracking. Meanwhile, Seadrill 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 thoughtsIt'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.

Of all the stocks mentioned, Enterprise Products Partners is one of my most successful investments. It's units have more than doubled in value as the company has increased its payout for as long as I've owned it. Despite low prices for natural gas, Enterprise Products Partners, with its superior integrated asset base, has proven that it can profit from the massive bottlenecks in takeaway capacity by taking on large-scale projects. If you don't know this company, I'd encourage you to click here now to check out The Motley Fool's bra-new premium research report on the company.

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. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Comments from our Foolish Readers

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I take the line this dude is thinking long term, not the usual "fill my boots" CEO of instant success and I want the reward NOW!...I'm happy to sit and pass on my Apple Investament.....'slo talkin..fast thinkin'......fast talker...slo thinker

Matt......thank you for your insight. While your piece sounds too much a MF infomercial. The last 10 years have certainly been interesting and just when one thinks "we've seen it all" another fiasco such as the market meltdown occurs (which has never really been examined openly).

As investors we can do everything right before hitting the buy/sell button only to be washed away by an event no one, save the algo freaks, sees coming.

It would be a noted addition to your piece if you took us out for a ride on HEK since you bought same on a total return basis.

Matt, you got it backwards! You're supposed to find out what our investment style is first, then invest. It took you 10 years to find that out!? So many of the kids don't know what they are doing in investments. I have run into two 20-somethings and two 30-somethings in the last three years that have never heard of the phrase "compound interest." What are they teaching in high school if not that? Go to your nearest four-year institution that offers a basic investment class and the next one up (portfolio management). It will serve you for the rest of your life. Nowadays, people can be living longer in retirement than in their working life. That's the first time in history on a large scale. At 65, you have a one-in-four chance of living to 90 and a one-in-ten chance of living to 95. Be prepared, you may be funding your Roth IRA for more than 50 years!

Matt, I feel like you and I are kindred spirits. I too fell in love with investing 3 years ago during grad school. I too love dividend paying stocks, and I too like to write puts to get paid to buy stocks at cheaper prices. I've also fumbled with a few huge misses (NFLX... blerg).

And as for Hotstock1, how do you know what type of investor you are without gettings skin in the game? It's like saying "I'm a shortstop" before even throwing a baseball.

A friend and I were talking last week about Exxon and he told me how he was very glad that he sold his shares not long after getting out of grad school because the return had funded a number of highly profitable investments in his early days.

I didn't bring it up, but a 100 share investment in Exxon in January of 1970 would be a 3200 share investment today.

You would have paid about $5700 for that original 100 share investment, a fortune to a recent grad!

But today that $5700 investment would be about a $288,000 investment, and that does not count the 43 years worth of dividends.

You mentioned Enterprise Products Partners and LINN Energy. Are those Master Limited Partnerships? Do they have K-1's you have to file with your taxes? Have you tried to sell one then do your taxes? When I sold my MLP doing the taxes took me weeks to figure out as the partnership gives a 'sales schedule' that adjusts your basis for all the 'dividends' that were reinvested. Thus you have modify the sales info from your broker, and also add gains in the K-1 section. TurboTax doesn't handle it straight forwardly. On the TT forums, several have said 'this just isn't worth it!".

Yes, both are MLP's and yes I've sold an MLP before and tried to do my taxes...I agree, its not easy to do with Turbo Tax. I decided to hire a professional last year and will never do my own taxes again!

Now LINN did something interesting that might help. It did an IPO of LinnCo which is a C-corp that only owns units of Linn. You get a 1099 instead of a K-1. I own that in my IRA and it could be something we'll see other MLP's move to.

- To the rest of those who commented. Thanks so much for reading and for sharing your stories as well.