Friday, May 20, 2005

Mistakes I have made

It is always good to look back at decisions I have made over the few months and determine what mistakes I have made and how I can avoid them in future. Here are a few:

1) Assuming that if a great company falls 20% in one day then it is oversold and under-valued.

When eBay's Q4 results came out in January it share price plummetted over 20%. This took the price below the level I had bought in 6 months previously, when making a nice profit last year.

My logic must have gone something like: eBay is now cheaper than 6 months ago; the earnings are higher and the business is just as great: BUY!

So I did buy. Unfortunately the market kept selling and at one point recently I was down over 20%. Ooops. I guess I didn't fully comprehend the implications of the slower growth rate the Q4 results revealed.

The Lesson: Always examine closely why the share price has fallen so much. Do not be in a rush to buy in but let the dust settle first.

2) Always rushing to invest cash from selling transactions.

Whenever I sell some stock and have cash available to invest I just cannot bear to have the cash un-invested. This means that I often buy stocks at a higher price than if I had waited a bit. It also means that when opportunities arise I rarely have any cash available as I am nearly always 100% invested.

A case in point is the recent purchase of Frontline Ltd shares. The cash arose from the sale of my Ask Jeeves holding, and the FRO shares were bought less than a week after the ASKJ sale. If I had waited a bit longer for a better FRO price or a different bargain to come along I would not have the big loss on FRO that my portfolio is currently displaying.

This brings my nicely to point 3:

3) Laziness at performing due diligence before share purchase.

I enjoy reading about share-dealing and specific stocks. I enjoy watching my portfolio fluctuate. I don't always enjoy reading detailed yearly and quarterly reports. This means I don't always do the research that I should before buying into a new company.

When I discovered Frontline Ltd I did read their latest yearly report. I also read their message board on Yahoo and did a bit more general digging. However I did not compare them with other oil tanker companies. This was a mistake. For example there are other oil tanker companies with most of their ship on a fixed long-term charter. This makes their earnings much more predictable and I should at least have considered this type of company.

At the moment FRO is the worst performer in my portfolio percentage wise, down almost 20%. It may yet prove to be a good investment but it is not looking good at the moment.

So there are 3 mistakes that I will try not to make again. I haven't done too badly in my investing career, only once selling at a loss out of the ten times I have sold. But there is still much room for improvement I feel.

2 Comments:

At 1:07 am, Blogger BobsAdvice said...

Phil,

Am enjoying your blog! I am a big fan of rules in investments. Rules about when and what to buy and rules about when and what to sell.

Maybe I over do it (?).

But I believe that the problem you mentioned about re-investing proceeds because you just hate to hang onto cash is something that I have suffered from in the past.

Lately, I choose only to buy a new position when I have a buy "signal". For me, that involves reaching a targeted gain on one of my existing positions. If I sell on bad news, either because of some fundamental announcement or because of poor price performance, I sit on my hands.

Would love to have you visit my blog
and hear what you think about my strategy, and how it might apply to what you are doing!

Again, appreciate your enthusiasm in blogging.

Bob

 
At 8:29 pm, Blogger Phil said...

Hi Bob,

Thanks for reading my blog and I am glad you enjoy it.

I think that rules for investments are a good idea. For my mortgage portfolio I have strict criteria that companies must pass before being purchased for the portfolio (see recent post.)

However I have no rules for my growth portfolio. This portfolio is about taking measured risks, learning about investing and having fun. Investing is also a hobby for me and hobbies should be fun.

However perhaps when the value of this portfolio has grown significantly I will be a bit more worried about risks and will embrace a few more rules.

Thanks again.

Phil

 

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