The Motley Fool

What you can learn from my greatest ASX investing mistake

Yes, that’s right – I’m putting the education of all investors above my own pride and revealing my biggest investing mistake, in the hopes that at least one person can avoid a similar mistake in the future.

So, cast your minds back to early 2015. Tony Abbott was still Prime Minister and I had a lot less investing experience (as will shortly be revealed). I had invested before, but was still learning the ropes.

I had read an article (whose publisher will remain nameless) about the ‘Best Blue-Chip Shares of Tomorrow’ and one of the shares so named was Slater & Gordon Limited (ASX: SGH). If I remember the article correctly, it praised the ‘first publicly listed Aussie law firm’ as cutting edge and a model for other law firms to follow.

So I thought ‘why not’ and duly invested about 5% of my portfolio at the time in this ‘future blue-chip’ with a long pedigree and the distinction of employing a former Prime Minster for a time.

If I had bothered to do some research about the company, I might have found warning signs of what was to come, but that I’ll never really know.

Things were all well and good for a time, but later that year trading was suspended before the company announced it had lost over $1 billion in a write-down of one of its acquisitions – a UK-based company named Quindell.

The shares lost almost half their value in the subsequent months, and soon it became clear that this investment was bankrupting the company.

Slater & Gordon was saved by a subsequent recapitalisation, but as part of the terms, the shares would be diluted on roughly a ten-to-one basis. Shares that I bought for around $6.40 four and a half years ago are today worth approximately 97 cents (and in reality, approximately 10 cents accounting for the dilution).

By the end of it, I lost 99.7% of my investment – and today I have a stake in Slater & Gordon worth around $5. That’s right, I never could summon the strength to crystallise the loss (until it was too late anyway) and still carry the scar in my portfolio. I’m not sure how many people have lost 99.7% on an investment, but it’s probably not a lot.

Foolish takeaway

So the lessons I want to give anyone reading this account of absolute investing failure are as follows:

  • never buy something because someone else says it’s a good idea
  • always do thorough and uncompromising research 
  • learn to cut your losses early.

I’ll probably sell my SGH shares one day when I need a capital loss, but it will always be there – a token reminder of how not to invest.

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Motley Fool contributor Sebastian Bowen owns shares of Slater & Gordon Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.