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Investing Lessons/"Mistakes" from 2020?


How many are sticking to the lessons in 2020?  

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  1. 1. How many are sticking to the lessons in 2020?

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    • I've modified it.


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Selling entirely my huge 15% position in JD.com at $38 in April after holding it for two years from around $35. It trades at $100 now.

 

Why? The stock was flat since January while some of my other holdings like BAC and WFC were down 35% so I concluded the later had become relatively better investments and that it made sense to move capital towards the bigger bargains.

I was expecting China to be faring much worse than the US given that it was the original birthplace of the pandemic.

I was also convinced their weird looking number of cases/death charts were a fraud and the government was hiding a massive number of cases that was going to be revealed any day (I'm still fairly convinced the numbers were fake but they did end up controlling the epidemic very well moving away quickly from their first "cover up and deny everything" response, while on the other hand the US government... Well, let's not go there.)

 

Mistake The logic was flawed because I failed to recognize the crisis had not hurt all companies in the same way. Maybe one company deserves a -35% and another one 0% due to a specific set of new circumstances. Can't get stuck on old price targets when the world has clearly changed. I knew JD as an online retailer was founded during the Asian SARS crisis and I should have realized they would be very well equipped for this.

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I doubled down on Airlines, thinking this pandemic was nothing more than other pandemic scares and that things would quickly blow over. Then I sold very close to the bottom.

 

Underestimating external shocks, and their sometimes very real effects on specific Companies, was clearly a mistake. Selling near the bottom was fine, since I found much better risk/rewards elsewhere. I also sat sucking my thumb on Lands End at 4/share, missing a multibagger in a Company in knew well which was already going through what seemed like a successful transition. Not sure it was a mistake though, I found better businesses I was more comfortable with.

 

Anyway, it seems investors often tend to learn the wrong lessons from their mistakes - if they're even mistakes - potentially compounding the problem. Investors often seem to take a couple of data points and conclude that they were either right or wrong, but the sample size is clearly ridiculously small, so it's basically resulting. I think investors could learn a great deal from professional poker players and their emphasis on process instead of outcomes. The recent investment letter by Coho Capital is very interesting in that regard.

 

It's interesting how firms like Saga Partners and Curreen have staged a comeback (Cureen only somewhat...) doing what to me seems a bit like YOLO-trades (but which have worked out). It's a humbling business, and feeling like one has found the magic beans after putting up a tremendous year might be dangerous.

 

I know from myself that I felt a bit stupid during March - being down close to 50 pct. from February highs - despite having high conviction in my ideas. Ending up 45 pct. for the year, and with pretty much every trade working out lately, I've been feeling like a champ and have been inclined to add risk instead of reducing risk. Which, obviously, is a very, very dangerous spot to be in.

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b]Falling for the bear market rally narrative

 

At the time it seemed reasonable to take advantage of the initial rally to raise some cash. Buffett was pretty bearish and most economists believed there was a strong possibility of a depression and the economy would take years to recover and most health experts warned that vaccines take years to develop. As such it seemed strange to see the market back trading at around 20x pre-COVID earnings and only 20% off pre-COVID highs.

 

What I should have done is focused on base cases. A 30% decline is pretty typical for bear markets and the base case after an event driven bear market is a sharp V shaped recovery. So there was every possibility that the market bottomed in March (as proved to be the case).  Also while the health and economic uncertainty remained incredibly high most of the S&P 500 consisted of companies incredibly well positioned for the pandemic.  And of course I should have expected that in a no-fault recession the governments and central banks worldwide would do whatever it takes to support markets and the economy.

 

Also even if the rally did reflect excessive optimism I should have realized that events could subsequently justify that optimism which turned out to the the case.

 

Of course turned out to be very costly because now I'm sitting in far too much cash and virtually everything is up over 50% or more from their 52w lows. And with the market showing no signs of slowing down watching the market continue to run away from me is increasingly painful and I am feeling very foolish.

 

 

 

 

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Seems really obvious, but a great many don't seem to recognize it .....

 

Every week, the business press routinely tells of company blow-ups. Maybe let the press do your 'searching' for you?

Almost always the company didn't meet short-term expectations, people need a whipping boy, and it's the share price taking the beating. Nobody wants to look stupid bucking the crowds 'obvious wisdom' (fear), and the paralysis magnifies the eventual loss on sale. Yet for many of these lepers, the underlying business hasn't really changed - just the valuation; and agency risk is now working very much in your favor. Most times we've taken advantage, it's been a 2 quarter investment, and we've done very well. 

 

Will next quarter be better?

If you think it will, the obvious thing is to enter a trading position today that exits next quarter; if you think it will not, exit today and buy back next quarter. If you think the next half will be better, do the same thing - but just with more shares. As you know the company well, know the 2-3 things that make it money, and know what's happening in its industries - it's not a big stretch. Most times we've entered a swing trade, it's worked out our way.

 

If you are going to invest via 'formula' (ie: filters), your comparative is the index. And most times the index ROI will win - simply because you're spending too much time in 'analysis'. Either invest differently, or do something else.

 

SD

 

 

 

 

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Selling entirely my huge 15% position in JD.com at $38 in April after holding it for two years from around $35. It trades at $100 now.

 

Why? The stock was flat since January while some of my other holdings like BAC and WFC were down 35% so I concluded the later had become relatively better investments and that it made sense to move capital towards the bigger bargains.

I was expecting China to be faring much worse than the US given that it was the original birthplace of the pandemic.

I was also convinced their weird looking number of cases/death charts were a fraud and the government was hiding a massive number of cases that was going to be revealed any day (I'm still fairly convinced the numbers were fake but they did end up controlling the epidemic very well moving away quickly from their first "cover up and deny everything" response, while on the other hand the US government... Well, let's not go there.)

 

Mistake The logic was flawed because I failed to recognize the crisis had not hurt all companies in the same way. Maybe one company deserves a -35% and another one 0% due to a specific set of new circumstances. Can't get stuck on old price targets when the world has clearly changed. I knew JD as an online retailer was founded during the Asian SARS crisis and I should have realized they would be very well equipped for this.

 

I'm with you. I haven't sold JD out of fear, bought actually during the scandal but should've kept it. Not sure why - but the stock seem to be perpetually undervalued relative to what it has as a company. JD Logistics and Health - still don't think the market is appreciating the strength of the business.

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b]Falling for the bear market rally narrative

 

At the time it seemed reasonable to take advantage of the initial rally to raise some cash. Buffett was pretty bearish and most economists believed there was a strong possibility of a depression and the economy would take years to recover and most health experts warned that vaccines take years to develop. As such it seemed strange to see the market back trading at around 20x pre-COVID earnings and only 20% off pre-COVID highs.

 

What I should have done is focused on base cases. A 30% decline is pretty typical for bear markets and the base case after an event driven bear market is a sharp V shaped recovery. So there was every possibility that the market bottomed in March (as proved to be the case).  Also while the health and economic uncertainty remained incredibly high most of the S&P 500 consisted of companies incredibly well positioned for the pandemic.  And of course I should have expected that in a no-fault recession the governments and central banks worldwide would do whatever it takes to support markets and the economy.

 

Also even if the rally did reflect excessive optimism I should have realized that events could subsequently justify that optimism which turned out to the the case.

 

Of course turned out to be very costly because now I'm sitting in far too much cash and virtually everything is up over 50% or more from their 52w lows. And with the market showing no signs of slowing down watching the market continue to run away from me is increasingly painful and I am feeling very foolish.

 

On top of SD's advice - there are many stocks that are trading well below intrinsic value - you just need to find them. Found two. I almost decided to raise cash during the rally but when discussing with Viking, I remembered 90% of returns only come from 4-5 days of outperformance. I'm not confident enough to figure out which days will offer that solace, hence I stayed invested. I would advice the same.

 

This board brought a great idea - SNC-Lavalin and it still not too late to invest imho. Bought a bunch of OTM calls before the rally but there's still time. Not sure why I'm sharing, but I guess there's a heart in this greedy capitalist. Short term it may fluctuate, but long-term I think there's catalyst to unlock value. Downside protection is the toll route trophy asset within.

 

There's also a slight chance of bankruptcy, if another scandal arose, but that depends on your risk tolerance and what you conclude from your own due diligence. 

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Also it's great that you were able to experience regret, because I think that will drive you to make better decisions forward.

 

I can list my failures more than my successes, and probably to the public, I'm quite successful despite this. Warren I think is only right 2/3 times, possibly less. As I grow older, I find that these risks and massive failures I took when I was younger, gave me an inherent advantage over my competitors now and it still compounding.

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Regret: Because I thought the market was not cheap overall, I allocated more to lower risk event-driven ideas with (supposedly) uncorrelated but lower returns. Should have been at least 100% long at all times  :D Nonetheless I beat the S&P500 with significant cash holdings. I had parked some cash in a SPAC and sold in the crash below my entry price and reinvested proceeds profitably, did not know how crazy the returns on the spacs would be in the future and did not re-enter later because I will not buy more than 2% above trust value  :'(

 

Another example: I was long one genetic company in Ark's ETF. No profits, lower growth due to Covid. I sold after ~2 years with just a >10x return using mostly covered calls. Should have held and enjoyed another 100% extra  8)

I was short TSLA <1% , but read the signs (ever more funds flowing in (index inclusion possible) / reality does not matter for at least some years or catalyst event and better long TSLA than worthless bitcoin) and totally reversed to long TSLA ~2% and then sold at a small profit. Despite knowing how important flows are and seeing confirmation biased shareholders like in TSLA's case, I did not learn my lesson to not short in this market, which lead to some cost in 2021 where I am just a little ahead of the S&P500 (GME cost ~2% of portfolio, but I could have held the position through, was just angst this could go >1000$).

 

Overall, I will not change anything. I keep buying small caps with a value tilt and focus more on international markets like Eastern Europe 2021 instead of expensive USA (will valuation matter in the end?). Another lesson is to sell crazy spikes due to twitter pumps (stocks go up up to 100% on no news and then go down again), but I have to work on how to spot this, as I am not constantly watching stock prices. Also difficult to tell the difference: Could this be another GME? How crazy can it get? --> max 0.5% position size. But I also manged to offload some microcaps (I was long) into the spikes and rebuy later. 2020 was too crazy to derive real lessons in my opinion. Despite some experimenting with warrant/unit arbitrage, I will never buy SPACS significantly above trust value despite the return potential (expected value positive as long as market = crazy).

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Sold a position in BYDDY bought at $5 because in April 2020 the outlook for EV and their other businesses seemed to be negative.  Partly driven by wanting to raise cash.

 

Lesson is to not raise cash during a pandemic? I think it could've worked out for you, if it dipped again.

 

Value - it did work out as the proceeds went into shopping center reit ROIC and JBGS and HEI.  Just not as well as BYDDY worked out.  Though I attribute most of that to a runup in the EV bubble.

 

The lesson for me is that I generally do better not acting to market events.  I've held through drawdowns before.

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Timely post as I was just reviewing 2020.

 

On an investing front, I was raising cash in my PA end of January and entered the lows holding about 40% cash and 5 positions. I was prepared for a pullback but not expecting what happened. I pitched 4 names near the lows all of which the big guy above failed to make a decision on and locked me out from buying in PA. I was able to deploy half my cash in other ideas but these 4 were on my buy list leading up and have all had great returns since. I was not expecting a rebound like we had and thought that we would chop near the lows for some time at which point I would be able to get into those names but it didn't work out that way and I rode 2020 with 20% cash.

 

The biggest lesson I learned - if you see value take it don't worry about getting the best price your not going to time the bottom nor the top. Second, everything happens fast the timeline to recognize value and act has become incredibly short. Idk if it has to do with the proliferation of ETFs and passive investors but it seems to me that when stocks get cheap they all get cheap at the same time. That makes it a bit overwhelming and can lead to distractions. The best solution is to know the stocks that you want to buy in a pullback and at what price there is not enough time to do your research during the downdraft. 

 

Control what you can control. I was pounding the table but wasn't given a clear yes or no on the investment decision and didn't want to buy first. Ethically it's the right thing to do, but in the rearview, he probably had no intention of acting on my pitches in the first place. When the S&P 500 was down 35% from the highs I was told I'm too bullish. Unfortunately, this isn't the first time something like this happened but an idea here or there happens for me it just happened to be almost half my portfolio. Lesson learned - i should get a new job. 

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I'll echo what others have said. I think it's dangerous to take too many lessons from 2020. The primary lesson I'm taking away is to make sure I think through how current events will actually impact the business I am buying. Some are more obvious than others. I was buying LUV in early March, and really didn't think enough about how hard it is to understand the long term implications the pandemic might have on air travel.

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Timely post as I was just reviewing 2020.

 

On an investing front, I was raising cash in my PA end of January and entered the lows holding about 40% cash and 5 positions. I was prepared for a pullback but not expecting what happened. I pitched 4 names near the lows all of which the big guy above failed to make a decision on and locked me out from buying in PA. I was able to deploy half my cash in other ideas but these 4 were on my buy list leading up and have all had great returns since. I was not expecting a rebound like we had and thought that we would chop near the lows for some time at which point I would be able to get into those names but it didn't work out that way and I rode 2020 with 20% cash.

 

The biggest lesson I learned - if you see value take it don't worry about getting the best price your not going to time the bottom nor the top. Second, everything happens fast the timeline to recognize value and act has become incredibly short. Idk if it has to do with the proliferation of ETFs and passive investors but it seems to me that when stocks get cheap they all get cheap at the same time. That makes it a bit overwhelming and can lead to distractions. The best solution is to know the stocks that you want to buy in a pullback and at what price there is not enough time to do your research during the downdraft. 

 

Control what you can control. I was pounding the table but wasn't given a clear yes or no on the investment decision and didn't want to buy first. Ethically it's the right thing to do, but in the rearview, he probably had no intention of acting on my pitches in the first place. When the S&P 500 was down 35% from the highs I was told I'm too bullish. Unfortunately, this isn't the first time something like this happened but an idea here or there happens for me it just happened to be almost half my portfolio. Lesson learned - i should get a new job.

 

Damn! That sucks. I'm not sure how to act in that situation, I wonder how the big honcho feels taking money out of your pocket. Not sure if that's a mistake, as you acted ethically. Always good for the long run.

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Regret: Because I thought the market was not cheap overall, I allocated more to lower risk event-driven ideas with (supposedly) uncorrelated but lower returns. Should have been at least 100% long at all times  :D Nonetheless I beat the S&P500 with significant cash holdings. I had parked some cash in a SPAC and sold in the crash below my entry price and reinvested proceeds profitably, did not know how crazy the returns on the spacs would be in the future and did not re-enter later because I will not buy more than 2% above trust value  :'(

 

Another example: I was long one genetic company in Ark's ETF. No profits, lower growth due to Covid. I sold after ~2 years with just a >10x return using mostly covered calls. Should have held and enjoyed another 100% extra  8)

I was short TSLA <1% , but read the signs (ever more funds flowing in (index inclusion possible) / reality does not matter for at least some years or catalyst event and better long TSLA than worthless bitcoin) and totally reversed to long TSLA ~2% and then sold at a small profit. Despite knowing how important flows are and seeing confirmation biased shareholders like in TSLA's case, I did not learn my lesson to not short in this market, which lead to some cost in 2021 where I am just a little ahead of the S&P500 (GME cost ~2% of portfolio, but I could have held the position through, was just angst this could go >1000$).

 

Overall, I will not change anything. I keep buying small caps with a value tilt and focus more on international markets like Eastern Europe 2021 instead of expensive USA (will valuation matter in the end?). Another lesson is to sell crazy spikes due to twitter pumps (stocks go up up to 100% on no news and then go down again), but I have to work on how to spot this, as I am not constantly watching stock prices. Also difficult to tell the difference: Could this be another GME? How crazy can it get? --> max 0.5% position size. But I also manged to offload some microcaps (I was long) into the spikes and rebuy later. 2020 was too crazy to derive real lessons in my opinion. Despite some experimenting with warrant/unit arbitrage, I will never buy SPACS significantly above trust value despite the return potential (expected value positive as long as market = crazy).

 

Congratulations - glad you're not sitting on your laurels.

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I'll echo what others have said. I think it's dangerous to take too many lessons from 2020. The primary lesson I'm taking away is to make sure I think through how current events will actually impact the business I am buying. Some are more obvious than others. I was buying LUV in early March, and really didn't think enough about how hard it is to understand the long term implications the pandemic might have on air travel.

 

Made the same mistake with Spirit and AerCap, but promptly changed in the middle as soon as it was clear that multiples were not going to rerate and businesses were growing sporadically during the pandemic. SE for example had no issues with COVID, and yet the market was pricing as if the situation was as bad as in the US.

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My biggest achievement in 2020 was to sell 90% of my stocks right before the COVID crash as there were many technical indicators showing the top. But I still had a 4% draw down on my account as the remaining positions dropped like a stone, which is a tragic because I had too much fundamental belief in them.

My biggest mistake was to choose not to believe in my technical analysis after the end of March when it says I should be buying aggressively. Being in an inner circle with classmates from Wuhan's CDC and Hospitals, the fundamentals clouded my view too much and scared the shit out of me to buy. I was ramping up exposure on stocks too slowly and ended the year with only a 11% gain.

 

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My biggest achievement in 2020 was to sell 90% of my stocks right before the COVID crash as there were many technical indicators showing the top. But I still had a 4% draw down on my account as the remaining positions dropped like a stone, which is a tragic because I had too much fundamental belief in them.

My biggest mistake was to choose not to believe in my technical analysis after the end of March when it says I should be buying aggressively. Being in an inner circle with classmates from Wuhan's CDC and Hospitals, the fundamentals clouded my view too much and scared the shit out of me to buy. I was ramping up exposure on stocks too slowly and ended the year with only a 11% gain.

 

Muscleman,

 

Thank you for bringing the Covid crisis to our attention early on.  I managed to hold onto our positions but bought a lot of out-of-the money puts to hedge against our portfolio.  We winded being up over 20% thanks to you.  More importantly, the risk management tactic was a very nice "surprise" to my investors during March/April.  Coming out of the crisis, we have gained more of their trust. 

 

If I can offer you a piece of advice is that if you see Vix trade to 80, just buy and hold your nose.  It only happened once before during 08/09 in my short 15 year career.  So if Vix spikes to over 80, it is just a blaring signal to buy.  I hope you can benefit from this piece of advice in the future.  Frankly, you can say the same for Vix of 40, or 60.  But 80 is definitely a no brainer. 

 

 

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My biggest achievement in 2020 was to sell 90% of my stocks right before the COVID crash as there were many technical indicators showing the top. But I still had a 4% draw down on my account as the remaining positions dropped like a stone, which is a tragic because I had too much fundamental belief in them.

My biggest mistake was to choose not to believe in my technical analysis after the end of March when it says I should be buying aggressively. Being in an inner circle with classmates from Wuhan's CDC and Hospitals, the fundamentals clouded my view too much and scared the shit out of me to buy. I was ramping up exposure on stocks too slowly and ended the year with only a 11% gain.

 

Muscleman,

 

Thank you for bringing the Covid crisis to our attention early on.  I managed to hold onto our positions but bought a lot of out-of-the money puts to hedge against our portfolio.  We winded being up over 20% thanks to you.  More importantly, the risk management tactic was a very nice "surprise" to my investors during March/April.  Coming out of the crisis, we have gained more of their trust. 

 

If I can offer you a piece of advice is that if you see Vix trade to 80, just buy and hold your nose.  It only happened once before during 08/09 in my short 15 year career.  So if Vix spikes to over 80, it is just a blaring signal to buy.  I hope you can benefit from this piece of advice in the future.  Frankly, you can say the same for Vix of 40, or 60.  But 80 is definitely a no brainer.

 

I'll echo these same thoughts. Had a very good year because of your insight, it is much appreciated.

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My biggest achievement in 2020 was to sell 90% of my stocks right before the COVID crash as there were many technical indicators showing the top. But I still had a 4% draw down on my account as the remaining positions dropped like a stone, which is a tragic because I had too much fundamental belief in them.

My biggest mistake was to choose not to believe in my technical analysis after the end of March when it says I should be buying aggressively. Being in an inner circle with classmates from Wuhan's CDC and Hospitals, the fundamentals clouded my view too much and scared the shit out of me to buy. I was ramping up exposure on stocks too slowly and ended the year with only a 11% gain.

 

 

What were the technical analysis that you touched upon? By the way - thanks for alerting the board at the time, wished I've seen it!

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My biggest achievement in 2020 was to sell 90% of my stocks right before the COVID crash as there were many technical indicators showing the top. But I still had a 4% draw down on my account as the remaining positions dropped like a stone, which is a tragic because I had too much fundamental belief in them.

My biggest mistake was to choose not to believe in my technical analysis after the end of March when it says I should be buying aggressively. Being in an inner circle with classmates from Wuhan's CDC and Hospitals, the fundamentals clouded my view too much and scared the shit out of me to buy. I was ramping up exposure on stocks too slowly and ended the year with only a 11% gain.

 

 

What were the technical analysis that you touched upon? By the way - thanks for alerting the board at the time, wished I've seen it!

 

Lots of data points that I can't go over in one post, just like you can't summarize Value Investing in one post here.

 

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Still struggling with these:

 

Perhaps a couple broader lessons I've learned: first, to try to do a better job of overcoming my natural aversion to ideas that are popular. One of the mental blocks for me was - "if everyone loves this so much, how can it still be a great value?" Going forward, I'm trying to do a better job of focusing more on an idea's merits and tuning out who likes or doesn't like it.

 

Second, and similarly, I've realized that it's internally inconsistent to A) believe that I have no edge in interpreting near-term price action, and B) prefer buying securities that have fallen over the near to medium-term past than securities that have skyrocketed. As with the previous item, I'm now trying to focus more on the "signal" - i.e. the idea's fundamental merits - and less on the "noise" - i.e. whether it's recently up, down, or sideways.

 

https://seekingalpha.com/article/4229722-small-cap-bear-next

 

To evolve as an investor, I’m eventually going to have to be honest with myself: I got something wrong here.

 

http://www.philosophicaleconomics.com/2017/09/pmbtdo/

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yeah james i fell into that trap. Especially when some of the initial price moves have been so explosive it is hard to jump on the latest hot trade but if it is still very undervalued it can still be a buy.

 

agree that it is much more reassuring when you buy a little too early and have the opportunity to average down. but buying a little too late is equivalent and can still produce good results if there is still a large margin of safety.

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