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My portfolio got an absolute thumping yesterday.
A shellacking.
I'm pretty sure it was the biggest percentage and dollar drop I've ever suffered in a single day.
The reason?
One of my larger shareholdings, Corporate Travel Management Ltd (ASX: CTD), resumed trading… more than a year after the shares were suspended from trade because the company hadn't lodged its accounts.
The reason for that? CTM had uncovered systemic overcharging in parts of its business, and the more it looked, the more it found. The company spent that year getting to the bottom of the problem and then, crucially, trying to work out if it could repay its customers without going broke.
It thinks it can. It lodged its accounts. And the company's shares resumed trading.
And then? The shares fell 85%. 'Ouch' doesn't even begin to describe it.
The thing is, yesterday's news was actually better than many had feared. Some speculated that it would never trade again. Others thought the fall might have been 90% or 95%. Or more.
CTM had sporadically updated shareholders on its progress, too, so we all knew what was happening. The only unknown was when the shares would start trading and how bad the carnage would be.
So, how do I feel?
Well, poorer, obviously.
And angry at the people inside the company who knew, or should have known, what was going on. And especially at those who (I should say 'allegedly' here, just to be safe) knowingly did the wrong thing.
Here's the thing, though: No-one outside the company knew it was happening. Even the company's previous auditors had signed off on the accounts, having presumably done the work of making sure everything was above board.
So, yes, I'm poorer and angry. But I'm also philosophical.
Life is unpredictable. Sometimes, you just get blindsided. That's the nature of investing.
No, it's not welcome. But it's unavoidable. Stuff, to clean up the phrase a little, happens.
The other thing?
The collapse in CTM's share price is precisely why good investing habits matter.
I'm diversified. By company, industry, currency and geography.
I have a long term perspective. Yesterday sucked. I suspect I'll remember it in 5 or 10 years' time. But I also suspect that, after that decade of compounding, that scar will have faded meaningfully – both financially and emotionally.
I expect bad news sometimes. Not because it's welcome, but because life is messy. I don't expect every company in my portfolio to do well. Sometimes, it'll be because I made a mistake. Sometimes because a competitor, customer or supplier makes life harder for one of my investments. Sometimes there'll just be 'unwelcome misadventure', to put it mildly.
We succeed as investors not by avoiding losing investments. That's not possible, unless you stay in cash… and have you seen inflation, lately?
No, we succeed by doing the right things, which cushion the blows when the bad news comes, and crucially also letting the good news drive our compounding over long periods of time.
In hindsight, I can tell you precisely which companies I should have bought, and which I should have avoided. I can tell you how many shares I should have bought, and at what prices.
But without that, and without a working crystal ball, my job – and yours – is to think in probabilities and expected returns.
It is to assemble a portfolio of companies that we think are likely to deliver superior performance over the long term, knowing that we'll be wrong sometimes, but aiming to be right more often – and for the winners to make more than the losers lose.
There is no successful investor in history who hasn't made losing investments. It's not how investing works.
They succeed despite those losses.
Could I have foreseen this? I don't know, but I don't think so. No-one outside the company knew – and presumably relatively few inside it. Even the auditors didn't know (or if they did, they didn't say). So how could we?
Could I avoid the next one? Sure, if I never invested again. But that would be incredibly counterproductive.
So what can I – we – take from the painful experience?
I think a reminder that investing is an imprecise art, full of uncertainty.
But that it's also incredibly worthwhile, overall, and these sorts of things, while gut-wrenching, are just the storms we have to sometimes sail through to reach our destination.
Was my CTM investment too large, as a proportion of my portfolio? It's easy to say yes, but if I couldn't possibly have predicted the alleged wrongdoing, isn't that just hindsight speaking?
Yes… and no. The very reality of that uncertainty perhaps should have led me to have less of my portfolio in a single company. It's something I'll spend some time dwelling on, and might make some (other) changes in my portfolio in due course.
(There's a personal wrinkle for me, in that I'm not allowed to recommend a company as a 'Buy' for our members and sell down if my position has become too large, so it's probably moot in my particular case… but the principle still holds.)
But – and here's the really important thing – as painful as it was, it has not dimmed my optimism for long-term investing one iota.
I share the Vanguard Index chart regularly in this space. It shows the progress of the ASX (and other markets and assets) over a thirty year period. It shows booms and crashes, economic greed and fear.
What it doesn't show – but is inherent in the results – is that companies were born and died during that time. They were added to and removed from share market indices.
It doesn't show the companies that lost 30%, 50%, 75% or yes, 85%, during that period. Some recovered. Some never did.
It shows the overall result. That despite those temporary and permanent losses, huge amounts of value were created, overall.
I wish I could avoid every loss, and grab every gain. I also wish for a unicorn and world peace.
In the real world, I know that this is a stumble for the value of one company in my portfolio. And I fully expect more (unfortunately).
I also fully expect that my portfolio will grow meaningfully over the next few decades, despite those stumbles. Ditto for the market as a whole.
Sailing through a storm isn't fun. But getting to the other side, and to your destination, makes bearing the storms worthwhile.
I'm keeping my eyes firmly on the horizon. I reckon that's the lesson of history, and the right approach for all investors.
Fool on!
