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.