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What is your biggest investment mistakes?


muscleman
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I hope this thread can help a lot of people as well as myself.

The preferred format is that we post as much detail as possible that answers the following questions:

What was your thesis at that time?

What was bull/bear saying?

What went wrong later?

In hindsight, what indications would have steered you away from that investment?

What did you learn from that mistake?

 

Of course, you can post anything as you want. You are not restricted to the above format. :)

 

I made various mistakes in the past. Not being patient. Not sticking to value investing and MoS etc.

I think the topic maybe too board, and you can talk about anything you want, but I recommend that we put a preference on value investing mistakes. :)

 

Let me start first:

1. CCME. I lost a lot of money buying that sucker and thought that would be the next FFH type of short squeeze. I thought that in the past, Chinese stocks seem fine in the market. Only a handful has delisted, and there was a big hedge fund backing it up, so it will probably not be a fraud. I also went on to check the buses, and even my friend who traveled in a small rural area in China saw that the bus has the CCME operations. Also auditor was Deloitte, so probably not fraud.

It turned out fraud is way more rampant than in developed countries. The assets may not legally belong to shareholders, and SEC numbers cannot be trusted.  :'( The auditor said they couldn't even verify the cash in this company's bank account! So how come Deloitte signed off the previous statements before? ::)

 

2. ATPG. Also a lot of money lost there. The lesson that I learned is that capital intensive industries are tricky. It is not much difference between a capital intensive industry and a high leveraged financial institution. A small error in estimated revenue can result into a big loss instead of a big profit. I bought because I saw those insiders all bought a lot, so I thought they could be trusted. But maybe they have been so promotional that they even fooled themselves into believing the bloated reserves and estimated production numbers.

 

3. MBI. I sold it one week before the BAC settlement. I was scared, and let emotion run over me. Just a few days before I got scared and sold, I wrote in our MBI thread that I thought there wasn't much downside, and a lot of potential upside. What a shame! :'( I think this is more of a psychological mistake. I intended to fix it by having a checklist, and read it during my panic time. Really, when I get scared, my vision would be narrowly focused on one little thing, instead of the broader view.

 

 

Other smaller mistakes:

1. I bought XCO. This is probably still arguable. I even made a small profit from it. But I got attracted by the sexy story that XCO is a nice distressed nat gas acquisition platform, and that a lot of big boys like Prem Wasta and Wilbur Ross are into it at a higher cost basis. But later after I bought, I realized that I didn't even do a valuation analysis on it! What a fool I am! Then I started to check the numbers. At that time, CHK was $22 and XCO was $7.8. CHK's price/sales ratio is 1 and XCO is 2.8. I told myself, well, CHK has 60% revenue from oil. Suppose we remove its oil revenue, then its price/sales would be 2.8, which means CHK has the same upside in nat gas as XCO, but CHK has a big growing oil operation that I can get for free! So why did I buy XCO in the first place? That seems a big mistake. I sold around 7.9, so that mistake is not too bad.

 

 

Today, I decided that I really need a checklist in front of my computer to control my emotions and get each investment more disciplined.

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I originally bought sears in 2007 or so around $147, I believe. I sold around $65 (it then went down to $30 or so. haha...but ouch!!) I learned to not "believe the hype". If a company is appearing on magazines as being a no brainer...chances are good that you're wrong. On the brighter side, with the recent upswing (and recent purchases) I've made my money back (and then some!).

 

I also bought Marvel (comics) back around 2001. I made a nice profit, but sold too early. I learned that when you have a great brand that people love, sometimes the sky is the limit.

 

I bought a small position in Nokia in 2010. I learned that in technology, you can get crushed. Even if the technology is fairly decent and valuation is fairly attractive, that is not a margin of safety! I think that was one of my last purchases because I became a fairly hardcore value guy.

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I originally bought sears in 2007 or so around $147, I believe. I sold around $65 (it then went down to $30 or so. haha...but ouch!!) I learned to not "believe the hype". If a company is appearing on magazines as being a no brainer...chances are good that you're wrong. On the brighter side, with the recent upswing (and recent purchases) I've made my money back (and then some!).

 

I also bought Marvel (comics) back around 2001. I made a nice profit, but sold too early. I learned that when you have a great brand that people love, sometimes the sky is the limit.

 

I bought a small position in Nokia in 2010. I learned that in technology, you can get crushed. Even if the technology is fairly decent and valuation is fairly attractive, that is not a margin of safety! I think that was one of my last purchases because I became a fairly hardcore value guy.

 

Could you tell me a bit more about your SHLD story in 2007? What was your valuation and Margin of Safety at that time?

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I originally bought sears in 2007 or so around $147, I believe. I sold around $65 (it then went down to $30 or so. haha...but ouch!!) I learned to not "believe the hype". If a company is appearing on magazines as being a no brainer...chances are good that you're wrong. On the brighter side, with the recent upswing (and recent purchases) I've made my money back (and then some!).

 

I also bought Marvel (comics) back around 2001. I made a nice profit, but sold too early. I learned that when you have a great brand that people love, sometimes the sky is the limit.

 

I bought a small position in Nokia in 2010. I learned that in technology, you can get crushed. Even if the technology is fairly decent and valuation is fairly attractive, that is not a margin of safety! I think that was one of my last purchases because I became a fairly hardcore value guy.

 

Could you tell me a bit more about your SHLD story in 2007? What was your valuation and Margin of Safety at that time?

 

Honestly, muscle, I wasn't nearly as particular back then nor was I a value guy. I had some Berkshire stock...and that was close to the extent of my knowledge (I'm still trying to learn every day). I really didn't put a ton of thought into it. I thought he was the "next Warren Buffett" as Businessweek crowned him. I figured that Buffett was a good investor, if this guy is the next version, well, that's all I need to know! :P

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Mine is ATPG and FTR for the similar reasons you listed below.  I learned to stay away from companies with high leverage. 

 

Tks,

S

 

2. ATPG. Also a lot of money lost there. The lesson that I learned is that capital intensive industries are tricky. It is not much difference between a capital intensive industry and a high leveraged financial institution. A small error in estimated revenue can result into a big loss instead of a big profit. I bought because I saw those insiders all bought a lot, so I thought they could be trusted. But maybe they have been so promotional that they even fooled themselves into believing the bloated reserves and estimated production numbers.

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I started investing in 2007 & have learnt quite a few lessons since then :)

 

GRMN: I bought Garmin at 60 and sold at 35. My mistake here was thinking Garmin, the company, was as good as their GPS without taking in consideration their technological moat(effect of smartphone GPS).

 

UNH: I bought UNH when Obamacare was about to be passed and the health insurers were down a lot. UNH was at 22 or so when I bough. But I sold at 35. My mistake was selling too early.

 

BAC & BAC-WT: I bought BAC around 8 and sold at 12. I actually believe in the franchise but sold too early to protect the profit.

 

AIG  & AIG-WT: Again I bought AIG at around 24 and sold at 40. Like BAC I actually believe in the franchise & like the CEO but sold too early.

 

I think my latest mistake is trying to time the market, I am at 65% cash right now.

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Two types:

1. Balance sheet mistakes MWA, for instance, some banks pre-crisis

2. Business quality mistakes- buying something that was a melting ice cube, ACCO comes to mind.

 

Paying too much for a good business has never been a problem. If a business is truly a good one, an extra turn of EBITDA or PE has not been a problem.

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QXM/XING.  The company was undervalued until the CEO ran off with everything.  Integrity matters.

 

2- ATPG:  I thought that this company was an obvious short and I shorted it (and covered too early when the borrow was 40%; later it shot up to almost 100% as the stock went to 0).

 

I thought that the real lesson from ATPG is to stay away from unethical management teams that overpromise and underdeliver.  Wasn't it obvious that reserves were inflated?  High debt is also arguably bad but I feel like it wasn't the problem.

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Honestly....aside from mistakes of omission, my largest mistake has been entering limit orders on my leveraged positions. Take Sears of example. I had 50 strike calls that were underwater. I was sick of holding them, it was a huge percentage loss. So I just threw in a limit order at a 25% gain or so and let it sit. Then of course I forgot about it, wound up buying more calls as the topic became more popular here on the boards, and then when the runup recently happened, 25% of my options hit that forgotten limit order in the first day. It was a case of short term emotions crowding out rational decision making!

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mine have all been mistakes that happened after I sold, so I've been extremely lucky in that respect:

 

ARO, bought it thinking it was cheap (maybe it is now).  Sold with an ok gain to switch into BRK, and then it went down by 50%.  I'm not entirely sure what lesson I should learn from that.  I think that retail is really hard, and that it is quite difficult to have any kind of moat with anything trendy.  That was fairly early for my investing.

 

Similar story with TEF, sold with a gain to get into BRK, then dropped a ton, exacerbated by the dividend dropping.  Lesson--high leverage business and not to trust management with assertions that seem way too optimistic.

 

Finally, CRUS/AAPL, and tech generally.  Again, sold with fantastic gains, but found my thesis dying later.  CRUS position with Apple was not nearly as good as I thought, as they removed margins with a stroke of a pen, essentially.  I never actually bought Apple, but thought it was cheap, thought I was vindicated on the way to 700 or so, then watched it come all the way back down to <400.  Lesson I've learned--if you can't predict 5 years out, then market sentiment can kill you.  e.g., if you think you can get a year or so down the line, but not past that, then market sentiment can eliminate whatever "knowledge" you have, until you are outside of your investment window.  Thus, you need to be able to outlast market sentiment, and can only do that if you can predict further than the sentiment's period.

 

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I once bough 10 times the amount of Apple options. Took me 3 days to realize that I made a 50% position instead of a 5% position. (made money but it could have been emotionally very hard to sell those shares if the options went down).

 

I bough RIM shares at 40$ and sold at 14$.

 

Before I knew value investing I bough Nortel Stock at 60$ after it went down from 120$. This one became a zero.

 

BeerBaron

 

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My most costly mistake so far has been to not buy BAC when it dropped to 5$, because some "pros" were saying that when the stock would dropped below 5$, it would dropped even further because some funds would have to sell it...

 

So i've been too greedy in wanting a lower price even though I knew it was a great bargain at 5$. And of course when you are that greedy you don't buy at 6$ because you tell youself you could have buy at 5$ a week ago. At least I bought some good chunks at 7-8$ on the way up.

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1) my first major mistake was Shengkai Innovations. You can read all of my articles on it on SA. I thought it was ridiculously cheap and did a ton of research on it. I was very comfortable with the position and had spoken with the largest third party distributors in the Middle East and in the United States so I was pretty confident that it wasnt another Chinese fraud. I bought at $5, more at $8.50, more at $7, more at $5, more at $2.50 (trading for less than cash on hand). I sold everything at $1.50ish after e CFO resigned. There had been a few red flags, but I was so confident in my analysis and the price was so compelling I kept buying more. No fraud was ever proven, or even accused, but the shares trade for about $0.25 today after a 2-for-1 reverse split. Lost something like $6,000 on this one and it was 30-40% of my portfolio at one time. That's a huge sum of money to lose when you're 21.

 

2) I bought garbage all throughout 2008. Instead of entering positions in high quality branded names, I was buying cigar butt stocks that were cheap on an asset basis. I remember very vividly looking at Limited Brands and Harley Davidson given the strong brand profiles and cheap valuations. I bought over-leveraged dry bulk stocks instead. Lost 75% or so subsequently on on EXM but watched in regret as HOG and LTD both returned over 500% in the following years. I still buy cigar butt stocks but recognize if you can get strong brands at a cheap valuation, it's likely going to end better even if the cigar-butts have a more compelling value just per the numbers. This wasn't all bad though - I did get into BofA with an average price of $7 and Google around $375.

 

My most costly mistake so far has been to not buy BAC when it dropped to 5$, because some "pros" were saying that when the stock would dropped below 5$, it would dropped even further because some funds would have to sell it...

 

So i've been too greedy in wanting a lower price even though I knew it was a great bargain at 5$. And of course when you are that greedy you don't buy at 6$ because you tell youself you could have buy at 5$ a week ago. At least I bought some good chunks at 7-8$ on the way up.

 

I did this with GE in 2008/2009. Had been buying BofA and it dropped like a rock once it fell below $5. All the way to $2 something if I recall. I was watching GE  at $7 and didn't buy thinking that the same thing would happen and I could pick it up cheaper. It never happened and I never bought and missed out on a pretty great time to enter....

 

 

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I once bough 10 times the amount of Apple options. Took me 3 days to realize that I made a 50% position instead of a 5% position. (made money but it could have been emotionally very hard to sell those shares if the options went down).

 

I bough RIM shares at 40$ and sold at 14$.

 

Before I knew value investing I bough Nortel Stock at 60$ after it went down from 120$. This one became a zero.

 

BeerBaron

 

BeerBaron, My biggest mistake also involved  Nortel (NT). I owned Clarify (CLFY) and it was doing very well. Then NT bought CLFY. My mistake was not selling at that point. I watched NT go up, and then back down below where it was when my CLFY was converted to NT. I didn't loose money, but I watched a 10-bagger turn into a 3-bagger before I sold.

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My worst mistake, hands down, was buying tech stocks in summer of 2000.  That was the start of my investment career!  I remember thinking that the nasdaq was down about 30% so stocks must be cheap, right?  I didn't know what value investing was, I was just dumb, young, over confident, and ignorant all mixed together.  I borrowed a sum which subsequently took me 2 years to pay down.  It ended up being a total disaster.  The stock market went down for another 2 years, just insane, merciless, unending declines.  You catch a bit of an updraft and then it would sink to even lower lows.  I think at one point I was down 75%.  Quite the learning experience.  I was done and I think if I hadn't discovered value investing I probably would have just stuck with ETFs for the rest of my investing career.

 

The one lesson from all of that was to know what you are holding, so you can be comfortable if it goes down temporarily (as in for several years).  At the time I had about 5 stocks and only 1 did I really understand.  When it was down 70%, it was no big deal as I knew it would come back eventually.  The others I sweated the whole time. 

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Letting a broker talk me out of apple when it was $20 pre split back in 2003.  Have never paid attention to what those fuckers have said since then.

 

Not having cash on hand during the end of 2008.  Had to take a personal loan in Feb of 2009 to buy a couple of things and missed a couple of 10 baggers bc I sold to early.  Got a little edgy with the profit and wanting to take it.

 

Investing in Research In Motion @45.  Didn't understand what I didn't understand about consumer behavior and technology.

 

Being fully invested more times then I care to admit.  No cash to take advantage of short term opportunities that pop up.

 

Getting outside of my comfort zone on a couple of stocks and not understanding the company as well as I should have. 

 

 

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Guest hellsten

I participated in the dot-com bubble :-[

 

I'm still just an amateur with high hopes… I've learnt that investing is mostly an art that involves patience and waiting for the absolute best ideas and concentrating on them.

 

Recent mistakes include waiting for BKIR to become cheaper, and selling another European bank too early, but the real lesson is that I should have concentrated even more on the easier picks like BAC and AIG.

 

From my mistakes, and the mistakes of the people I coattail, I've learnt a few things:

- always do your own diligence, take your time, and write down your thoughts; it will help keep your emotions in check.

- when you find a real bargain, make it a big position; you don't have to wait for it to become cheaper if it's already a 40-cent dollar.

- coattailing works, but only if you understand that there are many reasons why gurus buy stocks and sell stocks.

- gurus make mistakes all the time, mostly because smart people like complex ideas and rarely have the patience to do nothing for long periods of time; less variables equals greater success rate.

 

What are the biggest mistakes made by gurus like Seth Klarman, Francis Chou, Mohnish Pabrai, etc?

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I have two big mistakes excluding stocks of omission.

Nokia

As a swede I thought Nokia was a great buy at 9 euros. And just bought because of old memories. Now I try to stay away from my "home market Nordic countries" as much as possible.

HPQ

Second mistake was HPQ also just bought at $37 was thinking Glenn Greenberg had my back as he had a 4.5% stake. My lesson from that was I need more conformation then just one guy and wait until a opportunity presents it self. And only when the stars align up do I invest.   

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