Saturday, October 17, 2015

Learn from a Fool: Investment Mistakes


Watching the world go by @ Berwick Upon Tweed, Northumberland

I have made many investment mistakes in my life.  And the stock market is definitely an expensive to pay "tuition fees" with your hard earned money.  But it is inevitable.  Most investors will tell you that they lose money from time to time.  Even the best investors make mistakes.  Here I share some of my mistakes and perhaps you can learn from them and not repeat any of these mistakes I made.

Right up there on my greatest investment losses is perhaps investing in S-Chips or Chinese companies that are listed on the Singapore Stock Exchange.  Two of the shares that I own are still in the deep red with perhaps no end in sight.  Let me give you the story of one of these "darling" stocks.

There used to be an old forum called WallStraits where all the people who stand by Fundamental Analysis used to hang out.  Perhaps some of you remember that forum.  During those days, S-Chips were new and they all had such good financial records, P/E, NAV, etc that some stocks were being rated as BUY by nearly every member in the forum.  There were the darling stocks that were well-rated by all.

I read posting after posting during my spare time.  And when I finally made the decision to invest, I threw in a whole lot of money (in fact all of my spare cash) into one stock.  As the mantra went:  "Put all your eggs into one basket and watch that basket closely".  What could go wrong?  There were people who had lots more of experience then me and who had also put their money where their mouth was.  The stock was supposed to be one of those stocks that Warren Buffet would buy (if he lived in Singapore).

Well, the stock price went up a little and then it went downhill from then.  I averaged down my position thinking that it was undervalued.  Everyone was crying out that it was undervalued and that they were targeting it to hit a two or three fold return in a few months time when the stock market recovered.

To cut a long story short.  The stock market recovered.  Almost every stock rose back to their original price or even higher.  This stock however languished and truly became a penny stock.  I won't reveal how much I lost on that stock but it made me a lot more skeptical about the wisdom of crowds. Just because everyone is shouting that a stock is a "BUY" does not mean that it is one.  Everyone could be sincerely wrong.

My failure to cut my losses when I should also worsened the situation and I was so stuck into the stock that I  could not bring myself to sell it.  Today, that stock still sits in my portfolio.  It is the first stock that I bought and it sits in my portfolio worth a lot less than what I bought it for.  It is there as a reminder to myself that hours of research and being very certain about something does not mean it is a SURE BUY.

One of the lessons I learnt through this was also about asset allocation (Read about Yale Endowment Asset Allocation here).  Putting all your eggs into one basket is really risky risky business.  I was so certain that the stock was undervalued.  But it turned out the other way.  I hope people will learn from my mistakes.

5 comments:

  1. Is your S-chip still around?

    Some S-chips went to Hell :-(

    Another piece of Advice for your readers too.


    Newbies haven't earn their Right to Average Down.

    Take it seriously!

    ReplyDelete
  2. I agree with all the points that you shared here. Even i always invest my money in different sectors so that if i lose money in one field then the other field can cover my loss.

    MCX India
    Intraday Tips India

    ReplyDelete
  3. FF,

    I remember the Wallstraits days!

    Pfood and Unifood were the darlings then.

    Much like Olam, Noble, and Wilmar were the darlings 2-3 years back.

    The biggest mistake is thinking we KNOW a stock when it ain't so :(

    Oh well!

    If it doesn't kill us; it will make us stronger!

    ReplyDelete
  4. Hi SMOL,

    Yes, the wallstraits forum days where all FAs gathered and agreed that both unifood and pfood were undervalued stocks and would become a ten bagger...

    Ha...funny how the site and its community has liked completely vanished :)

    ReplyDelete
  5. Hi SMOL,

    Yes, the wallstraits forum days where all FAs gathered and agreed that both unifood and pfood were undervalued stocks and would become a ten bagger...

    Ha...funny how the site and its community has liked completely vanished :)

    ReplyDelete

Popular Posts