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Your worst investments


shalab
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This is a thread on the worst investments and what one can learn from them.

 

My worst investment was in a company that was trading below book but had a huge debt burden. While the company didnt go bankrupt, the stock price went no where. I am really prudent now to look at debt and its impact on the company before pulling the trigger.

 

 

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I bought a small O&G E&P company that where the CEO was buying back shares every day for the entire month.  The company had been around a few years.  The day after I bought about $4000 in stock they bankrupted.  CEO an idiot?  I will never know.  Sold the shares at about 5 cents on the dollar.  An addendum to Peter Lynch's rule on CEO buying shares: Sometimes a CEO may be delusional or stupid.

 

Laidlaw, in the late 90s - dividend was 20% - apparently for a reason.

 

Selling puts into a falling market - Fall 2008.  Ended up buying back a succession of puts at pretty steep losses.  This is a wonderful strategy filled with Joy and happiness.... in a rising market... god help you in a down market.  130% marginability catches up real quick.

 

You could pretty much name some kind of legal investing learning experience and I have probably had it.  I did manage to side step all of the biggest ones though, such as investing in tech in 1999, or housing in 2007.  I pay alot more attention to the Buffett ideas of price is what you pay, and value is what you get... and saving my swings... and dont lose money.

 

 

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I bought a small O&G E&P company that where the CEO was buying back shares every day for the entire month.  The company had been around a few years.  The day after I bought about $4000 in stock they bankrupted.  CEO an idiot?  I will never know.  Sold the shares at about 5 cents on the dollar.  An addendum to Peter Lynch's rule on CEO buying shares: Sometimes a CEO may be delusional or stupid.

I have seen CEOs do this on several occasions. I think some of them are delusional but I wonder if some of them were just trying to instill confidence in the company through the share purchases, it might have generated some positive press for the company and make supplier and customers think everything is A-OK. Once your suppliers think you are going bankrupt they will all start pushing for payment.

If the CEO had significant ownership in the company or other source of wealth then dropping $100,000 on share purchases might be considered a reasonable sacrifice to boost confidence get the company through a tough spell.

 

--

and of course, some of them are completely delusional.

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I bought a small tech company with good ROIC...and with a history of acquisitions . CEO was buying large amounts of stock. Four months later, a large fraud was uncovered and the company went bankrupt. Acquisitions can hide many sins, in the short-term!

 

Buying a small bank stock, even though I only had a weak understanding of key variables. Plus, the company had horrible corporate governance--I was a minority shareholder. Lost 50% on a small position.

 

Other mistakes include not selling cyclical, asset plays after big moves.

 

 

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Almost always, selling investments too soon thinking that they reached their fair value(too dumb :-(! some of them are TCK, ATSG & UFS.. They all went up substantially after i sold. I could have made at least 10 times in all of them.. I made about 100-300% on those investments. Still it hurts! They clearly not one of a kind businesses, so I cant really hold them forever. I don't really know what to learn from those..I am still planning to pick up something cheap & selling where I think they are fair prices to sell!

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Almost always, selling investments too soon thinking that they reached their fair value(too dumb :-(! some of them are TCK, ATSG & UFS.. They all went up substantially after i sold. I could have made at least 10 times in all of them.. I made about 100-300% on those investments. Still it hurts! They clearly not one of a kind businesses, so I cant really hold them forever. I don't really know what to learn from those..I am still planning to pick up something cheap & selling where I think they are fair prices to sell!

 

Walter Schloss or John Neff "we like to leave some on the table for the next guy..."

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Mine has to be buying Level 3 stock at several points in the last decade. I made a veritable lollapalooza of errors with this investment.

 

1) Investing in a company that had a good story but no history of profitability.

2) Ignoring the debt-laden capital structure.

3) Allowing myself to be seduced by a smart and very well-spoken CEO. "Silicon Economics" seemed like a great idea at the time.

4) Gaining comfort from investments in Level 3 by respected value investors like Southeastern, Prem Watsa etc.

 

Hopefully I'll make different mistakes next time. :-)

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Its a tie between:

 

Buying Real Estate in 2005

 

-or-

 

Buying Apple at 12.50 then SELLING OUT AT 21 (Thought I was a genius with that one!)

 

I think this is my pattern: my worst investments have been from basically second guessing myself out of my best ones.

 

Case in point: I actually nailed the top in 2007, sold a domain name for around 25K and put it all into 2 year LEAPS, at-the-money PUTS on the DIA, SP, QQQQ and GOOG - sold them in Jan 2008 thinking "this market will defy gravity forever". Had I just held them to expiry (Jan 2009) it would have been the trade of the century for me.

 

In terms an outright bad investment, I put a largish position into Instorage a few years back and (this is embarrassing), realized I had actually misread the financials. I thought they were profitable and paying a dividend when in fact they were losing money and making their distributions out of paid-in-capital. As soon as I realized the error I sold out at about 33% loss. They were eventually taken over but I don't know at what price.

 

Back in the day (1999/2000) I bought a stock called Georgian Trust, pretty well blind (I hadn't even heard of value investing then). Not a huge position but it went to zero almost immediately afterward. It's still sitting in one of my accounts, festering.....

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This list is, um, not exhaustive:

1.  Buying Nike in 1996 (my first attempt at a Warren Buffett / Lou Simpson type of brand stock), holding it for almost 4 years, finally giving up on it.  At which time it promptly rose 30% and has been a decent compounder ever since.  Fortunately, I put the money in Berkshire, so did almost as well last I checked.  Lesson -- patience, patience, and stick with an investment if the business is still performing well.

 

2.  Buying GE early in the 2008 downturn.  Lesson -- jury not totally back, but this will at best be a mediocre investment.  Lesson (using Klarman's words):  Being early is the same as being wrong.  And, financials are just too hard to value with rare exceptions.

 

3.  Selling out of good performing long-term hold stocks entirely instead of just trimming them after a runup. 

 

4.  Letting market nervousness induce me to enter stop loss orders -- which almost inevitably, whether through regular volatility or machine platform, low price seeking super fast trading, ends up selling your position on a very temporary dip, before the stock moves back up.  Ensures a bad sale. 

 

5.  Chasing a special dividend.  Didn't lose much, but a little. 

 

 

 

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