My Biggest Investment Mistakes
IMPORTANT: Please read the disclaimer before continuing.
I have to admit that I’ve been struggling with myself over this post for a long time now. Even now, it is painful for me to think about publishing this. These mistakes are something that I hold close to my heart and I am afraid to show it to the public (for reasons that I will explain later on in this post).
This content was written on August 2017 and I have kept it inside my personal investing diary for a long time.
I reckon it would be good for everyone to understand one thing. The best investors in your mind are nearly walking flaws. They are imperfect and no one is born to become a good investor from day 1. I’m the same. Instead, we are made stronger through our mistakes and we succeed because we avoid our mistakes strictly. Therefore, I want to let you in to be a part of my journey, even though I have to be vulnerable so that you can learn from my mistakes.
“Everything in life is a learning lesson.”
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In this month of August alone, I had experienced a series of learning opportunities in the form of two Singapore-listed businesses.
Hi-P International
In the beginning of 2017, Hi-P International was a company that I had invested in since it was S$0.57 and rode it all the way to S$0.93. I knew that the company’s second half of financial year 2017 was going to do spectacularly well because of the ramp-up in sales and reduced costs structure.
However, during the same period, the markets were filled with noise of an impending recession and the signs were alarm red. While I tried to dissuade myself from the news, I was frightened about losing my profits.
I had roughly around $430k worth of Hi-P Intl shares.
Deciding to give into my own fears, I sold all my shares. I have to admit that it was an irrational decision.
When the time came for the company to report their results, it was spectacular (as expected).
They even declared a 19 cts dividend …. on top of improved financial results!
Based on my purchase price, it would have enjoyed a dividend yield of 33%… except I did not because I sold my shares away.
33% dividend yield! On top of my capital gains! Imagine that.
In fact, during that period, Hi-P’s valuation was still reasonable compared to its peers. There was no logical reason to sell the shares. The company shares moved up from $1 to $1.44 in a very fast fashion — all in the matters of days. It peaked at $2.50. By selling my shares at $0.93, I gave up on 169% of potential gains. Putting it in absolute amount, that was roughly $731k of added profits.
$731k profits… Gone.
Imagine having an additional $731k in your life, what would that mean for your life?
Buying an entire apartment in cash? Able to be financially free earlier by 10 – 20 years?
Able to afford a year long holiday for your family members?
Yeah… you get what I mean. The potential lost was enormous beyond any form of description.
While I have earned more than 200k since I bought my shares at $0.53, it was very tortuous because I lost so much upside.
Emotionally, it was very, very tough for me.
I’ve always considered myself to be an astute investor. In fact, I’ve preached and highlighted the importance of emotional stability. Yet, I found myself lacking severely in this example. Feeling ashamed that I could not practice what I preached. I felt like a fraudster that did not have the rights to speak to anyone about investing at all.
At this point in my life, I felt that it was one of the most difficult periods of my investing journey.
Really, I only had 2 choices – give up or find out how I could improve better.
I sought to find out why I did the sale.
On a deeper level analysis, I could not resist the temptation of locking in my gains and perhaps, the fear of the market was just another added pressure that tilted my decision to sell.
It was so wrong.
“Hold on to your winners, and sell your losers.”
From this, I really learned that investing is not so straight-forward and it has been really tough managing my emotions. I am writing it down today because this will serve as an important reminder to serve me in the future.
InnoTek
InnoTek is a precision metal components manufacturer, dealing with tool design, fabrication, and die making services.
Believing that I had the magic touch when it comes to turnaround companies, I proceeded to invest a sizeable amount of money into InnoTek at $0.43 per share.
The business were suffering from a bloated cost structure and huge losses. After a new CEO (Mr Lou) came in, the business started to reduce its losses through a few initiatives.
Mr Lou added new management teams, reduced the company’s headcounts drastically and he changed out older equipments for more cost efficient equipments.
While Mr Lou was solving its internal issues, the external issues proved to be far more challenging than I’d first anticipated.
Their customers were shifting out of China, moving into lower cost countries such as Vietnam. As a result, InnoTek’s China operations suffered a decline in sales.
When InnoTek released their second quarter results of financial year 2017, the profits dropped drastically. The share price also fell from $0.40 to $0.30.
After doing some asset valuation work, I noted that the maximum downside for InnoTek was $0.30.
Despite knowing this, I proceeded to sell all of my shares at $0.30 out of fear that the shares would drop lower.
It was the wrong move because it recovered to $0.50 subsequently.
Looking back, I realised I had succumbed to fear and I had not approached the situation rationally. It was clear that the downside was $0.30, so why was I afraid that I would suffer more losses?
The answer was this.. as I was sitting on a loss of 30% or so, I felt more uncomfortable as each day went by.
It was not the lack of knowledge or home work, it was the lack of emotion stability that wreaked havoc in my mind.
I was too focused on Mr Lou’s initiatives and I did not concern myself with the evolving landscape which InnoTek operates in.
My Biggest Takeaways
These two experiences were deep and humbling moments for me.
Psychologically, I had been deeply affected because my stock portfolio is a form of my future aspirations. Or rather, I valued some aspects of my self-esteem based on my net-worth.
Looking back, it was extremely unhealthy.
I’ve been performing in the markets for a long time and I am known as the kid who achieved $500k by 24. I could not see myself failing in many ways. The pressure had built up over time and everyone expected me to be a market wizard.
The truth was… I just wanted to hide myself from the world for a while.
I took solace among my inner circle of friends. Thankfully, I have a friend who encouraged me forward. We spoke about my situation in his car as he was fetching me back home.
I shared my frustrations and disappointments. I guess, because they’ve seen things and been in the markets for a longer time, they were able to see things beyond my surface.
He encouraged me, in the bigger scheme of things, I am still going to make a lot of money. Don’t worry so much, and focus on the future. If I am so disappointed with myself and demoralised, I won’t invest with the same passion anymore. I may even lose out on my future multi-baggers (stocks which gives a return of more than 100%). This was what he feared the most.
I also managed to have another conversation with a millionaire friend who advised me on my situation.
He shared:
“This is the important transition for you now. At least you are able to experience it now than later. It is also a great opportunity to think through your investment strategy and processes. You are still young, you have plenty of time to adapt. From my experience, emotional stability needs time to learn and adapt. The real winner is not when you make money, the real winner is when you fall down and pick up again… and win big. Have you considered your learning points? If you do, and realised where the gap is, you learn from it and grow stronger. It is a painful process, but you’ll grow out of it… wiser.”
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Re-looking at what I wrote in 2017, I was so glad I took the advice from my friends. Since these two painful learning experiences, I took a long, hard look at my investment processes and evolved so much from my old ways.
I found many multi-baggers in the past 2 years alone, like PaySign, Hypebeast and others. My portfolio has grown in value and quality. The portfolio consists of “best of its kind” businesses.
My Learning Lessons:
- Do not focus on the media headlines too much. Media is created to generate attention and their headlines are often crafted to invoke fear.
- It’s not about whether you have made a lot of money. It is whether the company is still reasonably priced and has attractive prospects despite multi-fold increases in share price.
- Trust in the work you have done and build up your emotional stability. It may be hard in the beginning, but it will be worth it in the future.
- Pick yourself up no matter how hard you fall.
- Always keep an investment journal to know why you bought the stock.
- When you invest in a stock, you are essentially a business owner. If you have done your research well, you will know how much the company is really worth. Don’t let the media tell you otherwise.
In the stock market, the most important organ is the stomach. It’s not the brain. On the way to work, the amount of bad news you could hear is almost infinite now.
– Peter Lynch
It’s been an amazing 3 years since this has happened.
It was really difficult for me to move on in the beginning, but I did. I have also evolved my investment style from investing in turnarounds to explosive growth companies.
This has given me much better results over the past 3 years and has helped my portfolio to grow exponentially even through times of crisis.