After 30 years of investing I have made my fair share of mistakes, but I have also had some great investments. A good ASX share in my view can be 1 of 2 things. A solid value investment, where I have been able to find an undervalued good company. Alternatively, I also actively look for great growth opportunities. That is, companies that I think are likely to increase my investment by 5 to 10 times over the medium term.
Here are 3 ASX shares I have owned – 2 that I would willingly buy again if the sale price was right, and 1 of my more recent bad choices.
ASX shares in mining
I generally choose mining shares today only if I think they are likely to grow considerably in the near- to mid-term. Nonetheless, I used to focus almost exclusively on this sector. I started to buy Fortescue Metals Group Limited (ASX: FMG) shares at about $2.40. I knew Andrew Forrest from Anaconda Nickel, I knew the iron ore mining industry, and I thought the two things would go well together. I didn't anticipate the scale of his success though.
Even at around Thursday's closing price of $17.89 per share, I would buy FMG shares again and may do soon. The company is now very disciplined, very innovative, and has a solid future in front of it. At Thursday's closing price it is trading at a price-to-earnings ratio of 8.49, which I consider low, and pays a trailing 12-month yield of 9.84%.
Healthcare sector
In 2001, I purchased shares in Cochlear Limited (ASX: COH) for about $39 (from memory), and sold out later at approximately $130 per share. This was a wonderful investing experience and I earned a lot in share price growth and dividends. I bought it because of the pedigree of the science, the management style, and because there was clearly a large addressable market. I remain fascinated with innovative healthcare technology shares up to this day.
Right now, for me, Cochlear is too expensive for an ASX share. However, if the price was right I think I would buy the company again.
Regrets, I've had a few…
Although I have regretted buying several ASX shares, my biggest mistake was Avita Therapeutics Inc (ASX: AVH), but not because it is a bad company. Today the company is enjoying a second wind and I have been watching it closely.
I regret it because of how I managed the situation. Avita was started by Dr. Fiona Wood, who invented spray-on skin to treat burns victims. The treatment was used to help victims of the 2002 Bali bombings. I purchased these shares for around $63, then I watched as they went down to $31, then to $23, and finally to $5.30.
There were many reasons why it failed then. Reasons that are unlikely to occur again. However, I regret not selling them sooner. I held them and held them thinking that they would come back again. Had I acted sooner I could have reinvested what I had left and started to get higher returns.
Foolish takeaway
I continue to apply the lessons I learned from these 3 investments when I buy ASX shares today. First, management is the most important thing. A great manager in an average company beats a bad manager in a great company. I invested in Fortescue partly because I understood iron ore mining, but mainly because I had seen Andrew Forrest in action before.
Second, make sure you understand the addressable market and the company's competitive advantage. Cochlear was clearly taking proven technology into a wide open market. The IP it held was enough to see it gain a clear leadership position as the first mover.
Third, know when to give up. Every day I spent waiting for Avita to turn around was another day I wasn't getting a positive return on what was left of my investment.
Good luck!
