My Worst Investing Mistake(until now) - +40%+ return in 6 months

[rpadebet]

After a brief self imposed hiatus (due to various reasons) I thought I would re-join with a confession.

 

My worst investment mistake netted me a gain of 40% in less than 6 months. Before you guys think this is some display of false humility or disguised gloating, allow me a chance to explain:

 

In late summer of 2012, when I was a clueless "investor" (still suffering from it, but it was worse then), I bought a bunch of Facebook stock. Those days I hadn't read any of the value investing principles. Thought Buffet was just another Democrat who made a bunch of money in the market/business. Had suffered through losses in 2008 and hadn't learnt my lessons (not for lack of trying, but was reading the wrong stuff). Luckily for me, through my tryst with "observing" the market stress, I had developed a "feel" then for when things were stressed out enough. So after the FB IPO when investors were dumping the stock for fear of user growth saturation and no mobile strategy, I made a ballsy bet by buying FB @$19.

 

Then in the fall of 2012- early 2013, in my search for better investing principles, I found religion (this religion of Value Investing). I read a bunch of stuff, all over the place, but hadn't discovered the BRK letters yet. I read about deep value investing on how one buys assets and not earnings. How one is supposed to invest in at a discount to book value. This stuff made sense to the naive me at that point.(After all how could one go wrong buying  1$ for 50 cents? duh!) 

 

I started investing in value based mutual funds, to observe the professionals in action. I kept reading but didn't read the BRK letters yet. Something strange happened and I started worrying about my FB stock. I hadn't applied Value Investing principles and selected it more out of a "gut feel", what if I was wrong? So by April when I was almost sure FB didn't fit into Value Investing philosophy I immediately sold all the stock @$27. I told myself, wow, I got lucky with a 40% return in under 6 months, especially when I had no clue what I was doing.

 

I later made a lot of Value investing bets like AIG, MBI, MSFT etc where I made decent returns and i knew (at least i thought I knew) why I was making money. I met a bunch of big losers too like BBRY, CTCM, ARTW (this list is long). I did VRX too (made a bunch on way up and lost most of the gains on the way down, from about the same buy price point interestingly :)). All these losses though taught me something valuable about the risks I hadn't considered.(when you lose money, you gain experience as WEB recently said in his letter! that is indeed true for me).

 

What the early value investor in me had missed was taking into account melting ice cubes and giving secular growth enough credit. It is dangerous to your health to have half-assed knowledge and interpret the religious teachings narrowly, especially when you don't have the discipline of the great gurus. Percentage wise I think I lost more on VRX on the way down. But I still consider FB my worst mistake.

 

It is one of those things, not error of commission or omission, somewhere in between. Was lucky enough to buy it, didn't have the intellect to do nothing and hold it. As you guys know that particular stock is up 5x from my sell point and more than 6x from my buy point. I haven't had 5 baggers, but this could have been it.... in just 4 years! Alas... (also read as "a loss" which I haven't suffered in any other stock....yet)

 

 

Just wanted to share this after reading WEB's  take on, a person with experience meeting a person with money, in his latest letter. Sometimes something looking good on paper might indeed be your biggest mistake as it could have been great! Never assume you understand any religion because you have read it once. Reading once again might give you a different insight, if you still have a teachable mind.

 

Would be interesting to hear the worst investing mistakes from others on the board and their learnings from it. (only one mistake could be your WORST!)

 

 

PS:

Recently after lot of gut wrenching, stomach churning and fighting my inner demons, I decided to atone for my past sin and made a purchase decision again on FB @$120. Yes this was a very tough decision. The market didn't give me the value it once gave, but there was a small sell off given growth uncertainty and I could convince the still alive market timer in me to go for it. The market might as well be right this time, but I am hoping to beat it by holding it for long and wearing it down! Might not be a 5 bagger anytime soon, just hoping for decent returns this time. Let see...

[Desert_Rat]

Not sure if you're looking for hugs here, but my worst - easy - was thinking Ford would go the route of GM 8 years ago. I had like 20 grand in (I'm not rich) and I sold at a loss, buying at around $6, sold when the preferred's divi was over 100%. LOLLOLAHAHAHAHALOLOOLOL!

 

[Cigarbutt]

Studying mistakes is hard, painful but essential.

I have made a lot of errors of omission (sucking my thumb). Perhaps too selective.

I have bought stocks which I thought had value in a declining markets ie became value traps.

The most painful one was the purchase (very early on, it is when perhaps it is the most important to remember rule # 1) of a relatively small furniture manufacturer (Amisco). When I studied the industry dynamics, failed to see the lasting competitive advantage of Chines manufacturers. Was slow to react.

What is even more irritating is that I fell into a similar trap with Supremex after, a leading CDN envelope manufacturer. Underestimated the declining trends and did not get the timing right. Ended up with dividend gains pretty much cancelling a capital loss. But the opportunity cost was real.

As far as your specific pick, I can be of no help. I have absolutely no valuable insight for FB.

Good luck.

[Jurgis]

My mistakes similar to yours: buying at cheap (or somewhat expensive) price, selling within a year or couple for wash or minor gain, then watching X-baggers roll in: GOOGL, AAPL, ARMHY, FB (at IPO), Tencent (somewhat - I think I got out with ~2-3 bagger out of 200 bagger). In case someone wants non-tech example: HANS that became MNST.

 

ARMHY was possibly the most egregious one, since I bought it really cheap close to bottom in early 2Ks.

 

Long term similar mistake: BRK in the 1990's.

 

What make these possibly worse than yours is that I "knew what I was doing" when I bought and sold.

 

[Cigarbutt]

Jurgis,

I am reviewing your post.

I can't find ARMHY. Another symbol?

Thanks

[Jurgis]

Jurgis,

I am reviewing your post.

I can't find ARMHY. Another symbol?

Thanks

 

No symbol anymore. Arm Holdings sold to Softbank last year. Previously traded as ARMHY, ARMH, ARM (London).

[rpadebet]

Desert_rat: The idea was to learn from investing mistakes of each other,

Not looking for a confirmation of a particular stock selection, definitely not looking for hugs.

 

Mistakes are not necessarily where you lost the most money on a stock, you could make money being lucky and it still can be a mistake (that's my example). So if you have made a mistake and have learnt something valuable from it, please share so it would be good for others to learn from your experience.

 

It is probably tough to think about mistakes in a roaring bull market when the tide is so high, but this is probably the better time to do so.