Back in 2012, I decided I would buy shares in three companies that were struggling at the time.
Billabong International Limited (ASX: BBG), Fairfax Media Limited (ASX: FXJ) and David Jones Limited (ASX: DJS) were the three stocks and I explained my reasoning for each here (Billabong), here (DJs) and here (Fairfax).
Essentially, I thought that the market had oversold the stocks and they could make a reasonable comeback from those price levels.
So I bought shares in Billabong in Oct 2012 at around 85 cents and topped up big time when the shares plunged in June 2013 to just 17 cents.
I bought shares in Fairfax in Oct 2012 for around 40 cents per share, and I purchased shares in David Jones in September 2012 for around $2.25.
Fast forward 3 years and those purchases make me look like an investing genius – or super lucky – take your pick.
Fairfax shares have more than doubled from my buy price of 40 cents and now trade at 91.5 cents. Billabong shares are now 64 cents each while David Jones was delisted after a $4.00 per share takeover offer from South Africa's Woolworths was successful.
But there's just one problem.
I sold out of all three at various times – long before they had staged the recoveries mentioned above.
Yes, I'm kicking myself too.
So why didn't I hold? In hindsight, it's fairly clear that I should have, but at the times I sold out – I didn't have the same picture we can see today.
David Jones
David Jones was the first to be booted from my portfolio in 2013. At the time, I was clearing out small holdings of which DJs was one. So I made a number of mistakes with that trade. Firstly, I bought a position too small, so even if DJs shares doubled, it wouldn't have made much difference to my portfolio. Secondly, I didn't give the company enough time to live up to my expectations, and thirdly, I sold out after the market had experienced some heavy falls. "Buy low, sell high" mean anything? Clearly at the time I'd forgotten that.
In the end, I made a small capital gain and received some decent dividends, but the lessons I learned are worth more, much more.
Billabong
Billabong was next to be sold out of my portfolio, in July 2013. At the time, I was re-evaluating my investment in the company and was unsure which direction the company and its earnings were heading. Trying to work out what the shares were worth left me with a range of values to be almost meaningless. I decided to bite the bullet, wear the substantial loss and invest the proceeds elsewhere.
What should I have done? Held on and given Billabong the chance to recover, that's what. The lesson this time is again that I need to give companies a bit more time to prove their worth.
Looking back, I'm not unhappy with that decision to sell out, given I reinvested most of the proceeds into Telstra Corporation Ltd (ASX: TLS), which is now showing a nice capital gain and I've received plenty of fully franked dividends. The decision to exit risky Billabong and switch to the safety of Telstra also made it one less stock I had to keep a close eye on.
Fairfax Media
Like David Jones and Billabong, Fairfax also departed my portfolio in 2013 – again the lesson is that a year or so is probably not enough time for a company to demonstrate its ability to 'turn around' performance.
I had made a decent capital gain (24%) over the period I held Fairfax shares, but like David Jones, my position size was too small to making a more meaningful contribution. Unlike the two trades above though, I sold my Fairfax shares because I had found a much better idea – M2 Group Ltd (ASX: MTU). I had already owned M2 shares since 2011, but in October 2013 offered much more upside, and I just had to top up my holding.
With M2 Group shares now trading at around $9.45 – I'm very happy with that decision.
Foolish takeaway
As Warren Buffett says, 'investing is simple, but not easy'.
It's very simple to buy shares in a company without giving it much thought.
Investors should take the time to understand why they are buying in, how the current purchase will fit into your existing portfolio, and whether your expected return will make a meaningful contribution to your overall returns.
That makes the decision to buy more difficult, but you will have a clearer idea of when to sell, less chance of making an impulse decision and likely a better return on your investments.
