Biggest Investment Mistakes & Lessons Learned

[Malmqky]

I’ll start off with a recent one that that is rather far up on my all time list of mess ups..

 

1) Bought Meta at $300ish in Nov. 2021 and exited the position in Oct. 2023. Complete amateur hour. My biggest take away, or more so reminder from this, is to invert everything - something looking back I failed to do. I would like to say this would have played out differently if I had. Zuck didn’t randomly lose his mind after running the company quite well for a decade. Young people use Instagram and old people use Facebook, and they fill different niches of social media than TikTok does (before rees at least). Etc. Etc. Also, good reminder that when it comes to tech, things can change really fast.

 

Let me look at my notes from over the years and I’ll find something with bit a more insight and value to share.

Edited July 14, 2023 by Malmqky

[Blake Hampton]

Followed Munger into BABA at $200, pain.

[Dinar]

Mistakes of omission - not buying great companies because wanted a 5% or 10% lower price or I don't have an edge theory.

  A few examples: Sartorius Stedim Biotech in 2012, FSV in 2015, Google in 2009 (why, no idea - was a lot more fun looking at obscure microcaps half a world away), Monster beverages in summer of 2008, Deckers outdoors in December of 2008, and the list goes on and on...

[LC]

Opportunity costs as well.

 

Sucking my goofy thumb on META is the most recent big fuck up.

 

Tried to get too cute with energy stocks the last 2 years and as a result was light adding to Fairfax and JOE.

[Gregmal]

Early on got burned following Cooperman, Watsa, Chou and a few other geniuses into Sandridge. Didnt end up being a huge loss, but a very productive experience and valuable mistake to make. Felt worse than it was too. Had bought in around $5, remember almost to the tick it peaked at $7.43 give or take a couple pennies, and then the rest is history. Ended up getting out at $4 but the whole thing really taught me the value of not being a lazy schmuck and just doing my own work and sticking to my circle of competence.

 

Also, earlier on I was super streaky, which led to forcing things, which made the streakiness even more amplified. Have definitely learned to let the ball come to my court, plan in advance, and manage resources rather than just always having to do something because there is some potentially tradable datapoint.

 

Shorted some Tilray calls during that epic squeeze. Stock was at $70, shorted some $100 calls for $7. Got bought in at $125. Fun. Dont take stupid risks. Being right and making money are two different things quite often in the stock market. 

 

Learned a million things from my adventure with CTO. Wouldn't call it a mistake though. 

 

 

[james22]

Fannie Mae/Freddie Mac

 

Never underestimate opposing forces.

[Dinar]

@Gregmal, would you mind sharing your lessons from CTO?  Thank you.

[Dinar]

@LC, I same story with me on Meta and yes, trying to be cute with oil/gas last year rather than take a 10% position in JOE.

[Blugolds]

I'm guilty of all of the above. 

 

I've gotten better over the years at position sizing, but still think I have a lot of room for improvement there. Entry positions as I do more research and gain conviction only to see them take off on me. I should either take a position and mean it, or not bother. If the pitch is good and you know it...swing...less of this check swing stuff. Position sizing as port has gown over the years has also played with my head a little. Now, after many years, even a 5% position in a name is what I still consider serious money and if thinking about it in $$ vs % it can mess with my head. Thats different for each individual/portfolio. The % helps me think objectively and not that this position is the equivalent of buying a house. 

 

Also, one that I have learned the hard way, and was mentioned by Charlie Munger.  "Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you're not going to make much different than a 6% return—even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you'll end up with a fine result."

 

At the end of the day, remembering this has helped me to put more things in the "too hard/why bother" pile than I would have previously as well as being more comfortable with GARP.  Is the juice worth the squeeze. I find this concept so simple and valuable, but continually see people forget it. 

 

I have a couple names that are pillars, BRK, COST, but there are others that I take and previously never really had an exit plan. I've gotten better at that. Previously I took a position, saw it increase, sometimes even exponentially, and just sat there. Why? I dunno, tax reasons, validation of my work "getting that one right"...but if you are targeting a return for a port, and you achieved that return quickly, and the shares are fully valued optimistically now, why stay? Lock in those returns and move on because when the shares are now priced for perfection there is no more juice to squeeze. Instead, earlier in my journey I would ride it all the way up, and then all the way down, just sitting there and the reluctance of potentially paying taxes on a gain never materialized because eventually there was no gain! Or it was so small that it was insignificant. Dumb. and I've "lost" more unrealized money in the past by not being smart about when to exit/move on than I have with poor picks. Early I spent all my time/energy looking for businesses without devoting enough time to deciding what to do when I had made good choices, held the name and had gains, often significant ones. Due diligence isnt just in the beginning, and I always held on to the "make money when you buy, not sell" mantra...so wasnt concerned about selling. I do better with this now, but still sometimes find it a challenge, and have often taken money off the table too soon. There are worse problems to have and "nobody ever went broke locking in gains" but opportunity cost can sting a little in hindsight. My point is, if I do a valuation and make an investment that I think will return X% in X years and it gets there in a year or two, and is now priced for perfection, its run its course, take it out and look for another runway. Seems like common sense but I used to struggle with this more. Took some time to improve and get better in that regard.  

 

I think that is part of what I find so interesting about the markets. I'm continually learning and being "taught". Perspective is constantly changing. I cant tell you how many times that I have thought ideas were solid, only to find out they were lousy because of things I didnt know. Or thought that ideas were lousy, only to be shown that they were solid because of things I didnt consider. In retrospect they seem obvious. 

Final one is another from Munger...There is equal or even more value in trying to limit your big mistakes, play a little defense and be picky. Always looking for that fat pitch, you can sit there watching them fly by as long as you want, no balls called in this game. Making sure you dont swing at stuff you dont have confidence in hitting is just as important as swinging big when you see the fat pitch. 

 

Ultimately, I enjoy reading about businesses, management, markets and learning. But this journey has taught me just as much if not more about human behavior (my own and others) than it has about business, an unintended consequence initially, but equally as interesting and valuable. 

 

[Gregmal]

1 hour ago, Dinar said:

@Gregmal, would you mind sharing your lessons from CTO?  Thank you.

Posted it somewhere awhile ago. Will try to find it.

 

EDIT: page 14 of the JBGS thread.

Edited July 14, 2023 by Gregmal

[Guest]

My biggest regret/mistake is on GME. I bought the stock for around $4. Knew the set up, in my wheel house and everything lined up...well not quite.

 

We had no nanny or babysitter due to covid so I became the primary childcare provider. I ended up selling it for a small gain. It was not a buy and forget about it type of investment. I really didn't have time to dedicate to it...2 kids at 3 and 1 and my wife working like 60 hours or more a week (health care). Sold and indexed the proceeds. I did end up buying and selling during that huge run and made some though but only holding for day(s). I had no idea (obviously] that it would 100x in a few months.

[Daniel Deptula]

$ATUS

 

crappy compared to competitors, overlevered, huge b/b at high prices/crappy capital allocation, crappy mgmt, didn’t understand industry dynamics well enough, crappy/dbag majority holder, significant risk of $0 of things went bad (and they probably have)

 

drank the kool aid on “but it’s cheap relative to other cable-cos”

[Cod Liver Oil]

@Dinar ok, I get the mistakes of omission but did you make complementary mistakes in commission or did the stuff you own do nearly as well as well as the

great stuff you passed on? 

[thowed]

General thing would be chasing 'styles' after they've gone up that I don't have an edge.

 

Most recently would be Energy last year - the big moves were made by the time I was ready, & I started buying amidst the frenzy.  I did manage to figure out over time which of the Oil Royalty cos I liked/didn't like for the long-term.  This also applies to Fertilizer, which was going to be such a big thing!  Overall it wasn't too bad, but I should have gone in smaller while I was figuring out which stocks worked best.

 

I didn't buy BABA, but I did go into an China Growth fund with dazzling performance near the top.

 

Hopefully as time goes by, one learns different sectors, so you're ready to pounce when they go down.  But it is still psychologically tempting to buy into something that is 'doing well'.

 

 

 

[Dinar]

52 minutes ago, Cod Liver Oil said:

@Dinar ok, I get the mistakes of omission but did you make complementary mistakes in commission or did the stuff you own do nearly as well as well as the

great stuff you passed on? 

Generally the things that I own did well (portfolio has outperformed the S&P 500 comfortably), however the names that I did not buy outperformed the portfolio by probably 5% per annum over the past fifteen years or so.  

[Whensthepaintdry?]

I bought nearly the bottom on DIS, FB, and Exxon, during the coronavirus crash. I rode dis and fb up over 100 percent and back down to where they are now. Then like a genius I sold Exxon at a 20 percent gain. The market looks like it’s giving me a second chance with fb. 

[mattee2264]

I bought Microsoft and Apple quite early last decade when they were selling for about 10x earnings because Microsoft was seen as ex-growth because of its exposure to the declining PC market and Apple was seen as a hardware company selling overpriced phones. After they doubled in price I sold! 

Lesson learned was that you can leave a lot of upside on the table if you ignore growth and long term prospects. Buffett made the same mistake early on with Disney when he was still very much influenced by Ben Graham. 

 

Other mistake I have made a few times is not doing enough work on financial position so got caught up in the Sears and Chesapeake bankruptcy. 

Lesson learned there was that in a turnaround situation and for cyclicals you don't want to be on borrowed time! 

 

And the other mistake is being a bit too influenced by market history and expecting that valuations and margins will revert to the mean. When probably there is a case for higher margins and higher valuations in a New Economy. 

[backtothebeach]

1. Overhedging with short SPY and SPY calls and ending up net short in a bull market. Holding on for 1.5 years being stubborn. Lesson: Respect the trend. Don't be net short when the S+P500 is above its 200DMA. Chances are you are pissing against the wind.

 

2. Holding CBI/MDR almost until bankruptcy. Lesson: Management being optimistic does not matter. If they disclose surprise bad news on an earnings call that they should have known 3 months before, and this happens more than once, get out. Troubled companies that are running out of cash belong into the too-hard-pile.

 

3. After avoiding getting sucked into the SaaS hype for years, in late 2021 I sold some juicy put premiums on UPST (which I knew next to nothing about). When UPST crashed 40% I sold some more puts lol. Then it crashed another 80%. Lesson: If you have to sell puts, only do so for solid companies with substance, at a reasonable valuation, that you would not mind owning at the strike price.

[Spekulatius]

11 hours ago, Blugolds11 said:

 

Ultimately, I enjoy reading about businesses, management, markets and learning. But this journey has taught me just as much if not more about human behavior (my own and others) than it has about business, an unintended consequence initially, but equally as interesting and valuable. 

 

The behavioral and narrative aspect of Value investing is just as important than the an analytical one and I am terrible at this. FB is a recent advantage where I managed to lose a bit money, even though I added some at the bottom (sold way to early on the way up and was glad to get out). these narrative play out all the time TSLA and AI being a recent example. I think it’s an entirely different skill set than the analytical part and perhaps just as important.

 

Aswath Damadoran said that “every stock valuation is a story as well” and this only recently sunk in with me.

Edited July 14, 2023 by Spekulatius

[KJP]

1.  Laziness when markets are going up, i.e., spending too much time reading blogs, VIC writeups, Twitter, etc., rather than drilling down on specific businesses and getting very comfortable and knowledgeable about a few.  As a result, being unprepared when markets decline sharply and mentally flailing around from one potential idea to another without the confidence to swing big on good ideas.

 

2. Not understanding/being willing to take bigger swings when I had high confidence that due to business model and balance sheet, there was very low risk of significant loss.

 

3. Description masquerading as analysis.  Example of a post-mortem where my initial "analysis" suffered from this flaw, among others: 

 

[Saluki]

I think most of my biggest mistakes were emotional / temperamental, not quantitative.  Particularly in 2008.  I reacted better in 2020, but still not ideal. Some of them are things like holding on to a loser until it gets back to even. Or panic selling.  I think doing a post mortem is helpful to see where you went wrong.  Keeping a one pager with some notes that I write on the back of a Value Line printout of a company is helpful too.  

 

Peter Lynch said that if you can add 8 plus 8 and get a number close to 16, you know enough math to be an investor, because the most important organ isn't the brain, it's the stomach. Focusing on that part has been helpful to me. Reading things like "what I learned from losing a million dollars", "the psychology of investing" and even "fearless golf" have been useful.  I have a little post it note on my monitor with a quote from Dr Gio Valiante (performance coach for Steve Cohen) that says "deploy capital proportionate or the opportunity that presents itself at the moment" to remind me to follow the process, not the emotions.  And I have two little rubber duckies of Warren and Charlie from the Berkshire AGM on my desk too.  I don't know if it helps, but it doesn't hurt. 

[james22]

I might have posted this before, but these resonate.

 

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

 

It was actually reflecting on the first that helped me shift 10% to Tech mid-May after it had already done so well.

[crs223]

In 2007 i became convinced the financial world was going to end and swapped everything for paper gold.  March 2009 i bought back in… and pulled it all out a few months later convinced the world was going to end again.

 

I thought i had some special ability, but turns out i was just a zerohedge-reading permabear lemming.  Got back in during the COVID crash.

[SharperDingaan]

Over focus on the 'big' gains; incurring more risk than necessary, by ignoring the little ones. Close off the swing trades in layers, versus waiting for the market price to fall below the weighted average sale price of the layers. Smaller and repeatable gains sooner, at the expense of bigger gains later ( ... if they occur at all.).

 

Not adequately 'capping' the maximum tolerable unrealized loss. A 30% unrealized loss on a 500K portfolio is 150K, unpleasant but manageable; however, on a 5M portfolio it is 1.5M. Still disturbing, but not a big deal if you are willing to tolerate a maximum unrealized loss of 1.5M offset by a maximum 500K treasury holding. Increase portfolio risk, or grow the portfolio > 5M, and you need to aggressively shrink the portfolio to compensate. A 'top of mind' requirement, and a big deal, if you prefer concentrated commodity positions.

 

Not for everyone.

 

SD

 

[ValueArb]

On 7/13/2023 at 4:22 PM, blakehampton said:

Followed Munger into BABA at $200, pain.

i followed him in at $124, only then did I take the time to read their annual reports and see how badly their margins and business quality had declined since 2015. I was fortunate to get out with a small loss.

 

Following SuperInvestors blindly is always a mistake, at most their purchases should be viewed as weak suggestions to be researched. They almost all are well past their glory years because their portfolios have grown so large they greatly limit their opportunities. Buffett only has a couple hundred mega caps to choose from now, his decades of 30% annualized returns are long gone.