"I don't ask my clients to judge me by my winners, but to judge me by my losers because I have so few" – Jordan Belfort, The Wolf of Wall Street.
I've written almost 3,000 articles on finance and investing, with a particular focus on the share market.
Over the years, I made some good investments and some downright terrible investments.
Some would say we can't dwell on our losers because there is so much more to learn from the good investments. However, confronting and studying my losers has helped shape me into the investor I am today.
I hope you can take something away from my mistakes, and avoid making them over your investing journey.
The list below is not based on personal dollar value or percentage losses. Rather, it is the list of investment ideas I have made public of which I am most disappointed.
- Newsat Limited (ASX: NWT)
Newsat Limited went bust in early 2015. It was a prospective satellite operator with rights over orbital slots. The company went bust from the time I began writing about the shares and added them to my portfolio.
The company was small and somewhat speculative, but my mistake was getting caught up in the 'hope' it would become a dominant satellite operator and not conducting enough due diligence on management.
- Rio Tinto Limited (ASX: RIO)
I bought warrants on Rio Tinto shares a couple of years ago — I lost 49% in less than a year. Warrants are like ordinary shares except they are 'leveraged' to enhance your gains (and losses!).
There are many reasons this investment went wrong:
- I didn't properly understand the industry
- I was myopic (focused on the short-term), and
- Leverage can be a dangerous thing
- Resources shares are more often than not terrible investments
- Reffind Ltd (ASX: RFN)
It's perhaps a little unfair for me to include Reffind on this list because it was — like the other four investments — my mistake. Reffind shares have fallen 84% in six months.
I got swept up into an easy-to-understand business model (which could still be successful), but failed to remain patient. I dived in head first, buying shares for around 68 cents before they peaked at $1.97. However, they now trade for just 13 cents — below their IPO price. I dived in before the company had a chance to prove itself. I should have been more patient.
- Woolworths Limited (ASX: WOW)
We all know Woolworths and the risks it faces in the supermarkets division from the likes of Coles and Aldi. Woolworths was one of my worst investments by dollar-value.
When the competition began taking its toll on Woolies in 2014, I believed its shares were oversold. I began digging into its financials to try and come up with a value. I let my bias get ahead of my valuation work, and as a result, I was overconfident in my forecasts for profit growth, margins, and management. I spent too much time on valuation work and not enough time on objectively identifying the risks.
- Slater & Gordon Limited (ASX: SGH)
Slater & Gordon shares surged from below $2 to around $8 in the four years leading up to its acquisition of the Professional Services Division of UK-based Quindell Plc in early 2015. I went along for much of the ride, pocketing the dividend cheques and making handsome capital gains. I even made a sizeable investment for my family's portfolio at much higher prices.
It was not until the PSD acquisition that everything started to unravel, and I began to question my holding.
An investor I respect warned me about the potential implications of the company's accounting practices. However, I did not heed the warning, and it cost me. I 'fell in love with the stock' as some would say, and ultimately I failed to be as critical of the company as I should have been.
I also made the mistake of buying a company with poor economics. After all, lawyers get paid very well, but cases (which can take years to see through) may or may not pay off. All in all, you're left with little margin for error.
Foolish takeaway
It's not always easy to confront your losers. However, I think it's important to remind yourself where you went wrong so you can avoid making the same mistakes again. It's also vital to track and benchmark your performance, so you can make an informed decision of whether or not to continue with the same strategy.
