My greatest investment mistakes of 2016

[Snow Leopard]

I did two and one half stupid things last year.

1/ TWR

Bought in March on what I thought was a market over-reacting and then holding on long after I should have realised that in this case I really did not know better than the market before finally selling out in September.
Fortunately I did stick to my rule about only adding to winners and only ever bought a minimum ($20K) holding but quit with a 42% loss. This is percentage wise and $ wise one of my worst ever losses.


2/ IQE
Bought a half minimum (:confused:) holding in November 2015 and was in profit in late January 2016 when I doubled up. Then it tanked again and I should have followed my rules and sold then.
But I watched it go as low as $0.24 and rise up again to nearly $0.50 justifying my decision. End of March and it fell to $0.40 and in early April I was out with a 27% loss.


the half/ HBL

I sold down part of my HBL hollding, realising a great capital profit, mainly because I was well overweight HBL at the time.
As the year progressed and the various other portfolio members gained that overweightness would have sorted itself out. Indeed come the end of June I bought more HBL, but for a lower price than the earlier sell and the missed divvy, without achieving obesity.


Conclusions and lessons/

a/ The one I really regret is selling those HBL. I did not need to sell and the fact that I used some of that money to buy more IQE hurts a little.

b/ I do not condone buying into a downtrend outright, and over the years have done well picking the nearly right spot, but the moment it was obvious that the market was not going my way I should have admitted the mistake and moved on.


Otherwise I had a pretty good year.

Best Wishes
Paper Tiger

[Meister]

Thanks for the post Paper Tiger, can you perhaps elaborate on the rule you broke when you didn't sell IQE? I also dropped the ball on that stock, must have bought around the same time as you. Risky sector but thought it genuinely had promise. Then some unpredictable bad news (and again, and again) and I held on far too long. No single bit of bad news was enough to make me get out and took me too long to piece the story together, in hindsight was inadequate judgement of the increasing levels of risk on an already risky stock :\

[Snow Leopard]

Hi Meister

Rule: If you are down by 20% or more on your purchase price you better have a very good reason to still be holding. For me and IQE that was a share price of $0.424 or less.

IQE closed at $0.365 on 29-Jan-2016 because of another bad news announcement and I had an unrealised loss of greater than 20% and I did not have any good reasons to hold.

Really I should have sold on 1-Feb but looking at the chart I could make the case for not selling until 4-Feb.

I stuck to the rule after the price fell to $0.41 on 30-Mar-2016 and finally sold out on 5-Apr. Ideally I should have sold out on 1-Apr.


Luckily IQE now falls under the Do not buy anything with a 64 day average daily turnover of less $80,000 rule (being at $10,582).

Best Wishes
Paper Tiger

[Snoopy]

the half/ HBL

I sold down part of my HBL holding, realising a great capital profit, mainly because I was well overweight HBL at the time.
As the year progressed and the various other portfolio members gained that overweightness would have sorted itself out. Indeed come the end of June I bought more HBL, but for a lower price than the earlier sell and the missed divvy, without achieving obesity.


Surely a case of the Tiger beating himself up unnecessarily?

1/ It is only possible to make investment decisions 'at the time'. You cannot make them in the past of the future.

2/ You can't possibly know that the rest of the portfolio would have sorted itself out before it happened.

SNOOPY

[Snow Leopard]

...
a/ The one I really regret is selling those HBL. I did not need to sell
...

So let me expand on that underlined word need:
What I needed to do was absolutely nothing;
As rule I do not sell down just to balance a portfolio, winners are kept;
HBL was, and still is, a good share to own;
I did not, at the time have any other share in mind to purchase;
I sold purely for the sake of doing something, when the only sensible thing to do was to sit on my paws.

This is a flaw which I have previously been guilty of and a review of 2016 showed I have not kicked the habit.

Best Wishes
Paper Tiger

[BeeBop]

My habit also...I managed to sell THL and buy into IFT at the top of its cycle! I know that I shouldn't have done that but I thought I was smart so displayed my idiocy. Now I am moving my NZ profits into a managed fund and have allocated myself a play portfolio of real money in the UK (because more happens there) and that is keeping me very happy.

[percy]

BeeBop.
Would you mind starting a new thread and sharing your thoughts on UK stocks.
I did follow some stocks there over 25 years ago.!
Recently I tried researching some UK small cap stocks,but found nothing I wanted to buy.

[Snoopy]

So let me expand on that underlined word need:
What I needed to do was absolutely nothing;
As rule I do not sell down just to balance a portfolio, winners are kept;


Personally I see nothing wrong with selling off some of a position to balance a portfolio. In fact I regard it as prudent to do so. However, whether you agree with that appoarch or not, I also do not enjoy turning over a portfolio unnecessarily. My rather loose system is that I have a maximum dollar amount that I will keep invested in any NZX share. However, if I go over that maximum I would not do anything sudden until I reach a tolerance over my target. This tolerance is 100%. IOW I will sell off any share that reaches twice my value target. Now you may say this is foolish. If the share is continuing to go up just ride the wave. For me this appraoch is too risky. Given that I am already 100% above my investment target amount, I find great relief in selling down and very importantly lowering my average buy in price at the same time.

Needless to say I don't need to trade very often

SNOOPY

[BeeBop]

BeeBop.
Would you mind starting a new thread and sharing your thoughts on UK stocks.
I did follow some stocks there over 25 years ago.!
Recently I tried researching some UK small cap stocks,but found nothing I wanted to buy.

Percy, I shall do...probably I will merely lay out what I do/hold and why (my metrics). I am not a regular analyst....first call is for you to listen to the Investor Chronicle weekly podcasts (I get them via iTunes), the companies and markets show is one of my favourites.

[percy]

Percy, I shall do...probably I will merely lay out what I do/hold and why (my metrics). I am not a regular analyst....first call is for you to listen to the Investor Chronicle weekly podcasts (I get them via iTunes), the companies and markets show is one of my favourites.

Thank you I look forward to your post.

[BeeBop]

I have put a post on the Overseas board....BeeBop does the UK.

[Schrodinger]

Hi PT interesting post. I too bought into TWR but am still happy to hold. Mainly went in on the bad news on a value play. Still on the fence as to if I would add more as I think they have a viable business model. Any thoughts on why you didnt buy more or did the recent downgrade scare you away. I did a simialr thing with HBL which turned out nicely. Although HBL is a different profile I still went in on 1.18 in April 16.

I just finished https://www.amazon.com/Art-Execution-worlds-investors-millions/dp/085719495X which talks about a few of your scenarios. Personally I think the NZ market has a higher risk profile than they talk about in the book v USA (less liquidity/markets not fair value) and fewer stocks to select.

[levin123]

My worst and most irritating mistake of 2016 was trying to catch the falling knife, resulting in the loss of two fingers and a thumb.

MBE:asx released a profit downgrade and a very confusing announcement that the market hated. I thought I could time the bounce correctly as I'd fluked the dead cat a couple of times before in similar circumstances. Nope missed it completely.

The first mistake was obviously buying before the dust had settled to at least provide a good idea of where the bottom is going to be. But my second and more egregious mistake was panic selling once I realised I'd stuffed up.

Lost around 32% on that trade, whereas if I had let the dust settle after my first mistake, I would have exited a couple of days later at around -10% instead.

Not a big loss in terms of $$$ because my capital base is pretty low but still very fricking annoying. Happened in late November as well so reduced a stellar 2016 28% ROE to around 18%

[GTM 3442]

Plenty to choose from, but let's go for not selling PEB>$1.50.

[Snow Leopard]

Plenty to choose from, but let's go for not selling PEB>$1.50.

Not one to quibble but that would have been you worst mistake of 2014.

But what did you know at that time that you ignored that made it such a bad mistake?

Best Wishes
Paper Tiger

[Snow Leopard]

Hi PT interesting post. I too bought into TWR but am still happy to hold. Mainly went in on the bad news on a value play. Still on the fence as to if I would add more as I think they have a viable business model. Any thoughts on why you didnt buy more or did the recent downgrade scare you away. I did a simialr thing with HBL which turned out nicely. Although HBL is a different profile I still went in on 1.18 in April 16.

I just finished https://www.amazon.com/Art-Execution-worlds-investors-millions/dp/085719495X which talks about a few of your scenarios. Personally I think the NZ market has a higher risk profile than they talk about in the book v USA (less liquidity/markets not fair value) and fewer stocks to select.

I am going to assume that your question is "After making the decision to sell your investment in TWR have you considered buying in again since?" and then deviate from there.

On chucking my TWR investment I also chucked my valuation and have not done another since but I have noted the possibility of them splitting into 2 (again!).

So I have no valuation to compare the current SP with, and I will not do another valuation until such time as my screening software flags it up as something to look at, which it will not do whilst the price keeps dropping away.
It will need an upturn and some increased volume to become an investment of interest.


I also note that some people seem to have the need to try and recover their losses on a stock with the same stock. That is an emotional attachment which does no good.

I would advise anyone to ensure that their reasons for holding a loss are really, really sound and if you sell out do not let the prior loss be the reason to buy in again.

As for HBL, still regard it as a good company and my last buy was on the Brexit dip as I thought that price was less than value (and I had some spare change).

Not read the book - Kobo want US$20.

[footnote: I also, with my trading hat on, bought and sold TWR twice last year - but that is a different story and I am not going to start the greatest trading mistakes thread].

Best Wishes
Paper Tiger

[Vaygor1]

.... I also note that some people seem to have the need to try and recover their losses on a stock with the same stock. That is an emotional attachment which does no good.

Never a truer word said.

Historically, I have been super guilty of this.

Working this issue through in my brain and finally coming to terms with and accepting I had been making emotional decisions in this area was an important step towards level-headedness... a quality in which I still fall short, but for other reasons.

I was lucky. On the occasions the above scenario took place, the outcomes for me were in fact splendid, but I know now that in the few instances I did this in the past (and with some pretty high stakes I might add), my rationale was just plain wrong.

[Valuegrowth]

Mistakes that we make in markets


Sell stock too early
Buy stocks too late
Sell stocks and make losses after keeping them for a considerable period and then miss one of the biggest gains.
Buy and hold companies with poor fundamentals
Trade very often and then lose money
Rotate stocks form quality stocks to new found glamour stocks (they cannot make predictable profits for a considerable period) and then lose money.
Chased stocks based on recent strong performance (Stick with your investment plan and rebalance, which is the opposite of chasing performance.)
Giving too much attention to financial media
Invest without a plan
Buying shares in a business which you do not understand
Being Driven by Impatience
Following the crowd


Anwar to successful investment is doing the opposite to the above.