“A life spent making mistakes is not only more honorable but more useful than a life spent doing nothing.” ~ George Bernard Shaw
A wise man once said that a person who doesn’t make any mistakes in stock market investing is someone who has never bought a stock.
For most of us investors, however, we are left with a lot of regrets come year end…
Regrets like…
- I should have bought this stock a few months ago!
- I should have sold this stock a few months ago!
- Why did I sell this stock!
- Why didn’t I buy that stock!
- I made so many mistakes this year!
Needless to say, mistakes lead to resentments, resentments make you miserable, and being miserable is always painful.
When I look back at my mistakes this year, I see one that was really up there.
That mistake was of, well, following Ben Graham’s advice of selling a stock for 50% gains or in 2-3 years, whichever is earlier.
While I have held on to some stocks for 4-5 years now, one stock that really tested my patience was Swaraj Engines, which I had bought in September 2010 at around Rs 405.
After 2.5 years of holding it, I sold it in March 2013 at almost my buying price. Here is how the stock did during the period I held it…:-(
Here is how it did ever since I sold it in March 2013…:-(
Of course, we all suffer from an ailment called “Hindsight 20-20” when things look clearer after they have happened. But then that’s the way you realize you made a mistake that must not be repeated and that must instead serve a lesson not to be forgotten.
For me, the lesson here is that I must be more patient with good, simple, and clean businesses.
First, there are few such businesses available out there. Two, if I can get hold on to one of them, and the underlying business continues to do well and without any negative surprises, I must have the patience to stick with it.
“Be extremely patient with businesses with sound underlying economics” is something I have marked in bold letters in my investing journal.
What about you? Which is the biggest investing mistake you made in 2013?
I know it would be a tough decision to choose just one of your mistakes as the biggest of 2013. I mean, like me, there would just so many, right? 🙂
But please share the biggest investing mistake you made in 2013 in the Comments section so that other tribesmen may take some valuable lessons from it.
Happy 2014!
Hi Vishal. Firstly it takes a lot of integrity and courage to admit ones mistake. You have been very modest in acknowledging that it was your mistake and have wonderfully provided a lesson to all of us. We all go through this experience when our patience is tested but we do not admit our mistakes. Thanks a lot for bringing out this behavioural aspect which many investors go through.
My pleasure, Steven!
Selling Swaraj Engines is one of my mistakes in 2013 too, same pinch 🙁
But, Aurobindo Pharma became a very costly mistake, I had bought Aurobindo Pharma(when it was not doing good) @ 190, saw it go down to 90 levels, i held. it came back strongly to 180 levels, then back to 150 levels where I averaged some quantity, but finally sold all @ 185. 2 weeks after I sold, it started crossing its resistance levels and now as you know it is @ 400 levels, a cool 100% return if I had continued to hold for a few days more than the 2 years before that !
Thanks for sharing Prasad! But what was the mistake and lesson learned from your ventures with Aurobindo Pharma?
Hi Vishal,
When Aurobindo Pharma went down below levels of 100 and I had held it, there were real issues – it was linked to Jagan Mohan Reddy(he was jailed), there were cbi raids and the promoters had pledged a good quantity of shares, and there were more than a couple of drugs for which they were waiting for USFDA approvals. But I held them having whatever knowledge of the pharma industry 🙂 but not believing in it, you lose the whole picture when you see something bought at X, goes to X/2 levels and does bounces back to those levels, I started wondering how much more it can go up 🙂 but one by one positive news in the form of usfda approvals, promoters revoking the pledged shares happen and now it is @ 2X levels 🙂
My biggest mistake of 2013 —
Having designed a sound completely mathematical and software driven analytic investment model called EKALAVYA — after efforts of 4 years — also having tested it successfully for last 5 years —
I am still not able to achieve 100 % compliance wth requirements of model/software …I am still at 60/70 % level
May god help me in this year to achieve my target of 100 %
Heard that in investing/trading no model/strategy can give 100% complaince
That’s true, Praveen!
Hi Vishal,
I believe it is a mistake when the process is incorrect irrespective of the outcome (and so I believe the stock charts are redundant here). One of the reasons why I find outcomes unreliable as a metric of mistakes is that they are impacted by a variety of random factors.
Keep up the good work, I do not comment often but I am a big fan of your blog! I wish you a very happy new year in advance.
Cheers,
Shouryamoy
Indeed Shouryamoy! Now, while one part of my process told me to have faith in companies with moat, I was still worried about the stock price and thus made this mistake.
So the real mistake was not following an established process.
That’s true Shouryamoy! The process here was the problem – of mixing Graham and Buffett philosophies.
I bought BHEL at Rs.104 after a lot of study but the more I tried to learn the more unsure I was. I made an extremely small insignificant investment due to listening to a lot of”noise” End result I have 68% returns in 3 months but due to the size of investment it really makes no difference to the overall portfolio.
Lessons learned –
1. Make sizeable investments – not very large but still large enough that it makes a difference to your portfolio.
2. ignore unnecessary noise- tough one as its difficult to decide what is noise and what is not but I think I will get there with some deliberate practice
3. Trust your instincts – have just started investing so its going to take some time & simultaneously watching for over confidence makes it more difficult
Yes Deepa! I have made this mistake of under-sizing countless times myself! 🙁
Thanks anyways for sharing your mistakes here! Regards.
Dealing with hdfcsec was the biggest mistake I made in 2013 but severed all connectrions with them Jan 2013.
They are a bunch of “courier delivery boys’ in their Kanjur marg branch like Naresh Rever and Chetan G Patel who run the show under fake expert VK Sharma who doesnot even know VST Industries.One of their strong forceful suggestions to me was sell Infosys and buy punter stock Hexaware.I told them to get lost and then they said they wl come from Kanjur Marg to Chruchaget to meet me unsolicited at which point I servered all connections wiuth them.They even went to the extent of stalking me for next 3 months with my new broker and my residence bldg!
One broker defnitely to avoid under all costs is hdfcsec.
Thanks for highlighting the issue, Suketu!
Two mistakes for 2013:
1. I bought Eicher Motor @ Rs.3400/- and sold it in panic @ around Rs.3000/-. Now again bought its @ Rs.5000/-.
2. Was thinking to buy Acrysil when it was trading @ Rs.125/- (Mrk.Cap Rs.40-50 cr.). Now bought it @ Rs.225/-.
Prashant, you may have just made two more mistakes! 🙂
If you have bought these stocks just because they have risen sharply in prices, you have given in to the “regret aversion bias”, which caused Newton big losses with his investment in South Sea Company in the 1700s.
Of course, you may also have other reasons to buy them, which you know best.
Yes… you are rite i guess…
Yes Vishal, no life or learning without mistakes :). I have so many, let me put one. I don’t know whether we can call it as a mistake (at this point it looks like that). Infotech Enterprises which was trading at 2/3 times its cash flow. It was looking cheap and interesting but was not comfortable investing because of the location of their business and not sure on its management. This one went up 100% percent.
Leaving out the mistakes, I consider knowing your site is a best thing happened in 2013. I hope, I will become a wise investor with the knowledge sharing I am getting from you.
Thanks Mr. Swaminathan!
So the lesson here is to work on building conviction on a story that a basic analysis says is sound and interesting. Right?
My biggest mistake was selling AllCargo Logistics too early.
I started seeing it last year when it was at 130-140 levels. According to me, its fair price was in 100-110 range. I bought in at below 70 levels with an MOS of 30%. It promptly went up to 100 levels again and I sold off! I usually do not sell so short but somehow I felt it won’t sustain at those levels, so I would buy again when its back to discounted price.
And now its hovering around 119 again.
Lesson learnt:
Hold on to companies you have conviction in. Selling it short while believing it would go down again is also SPECULATION! I am a Value Investor and I should not speculate.
Indeed Parvin! Thanks for sharing your mistake here.
Thanks yr kind comments Vishal.I have not made any investment mistake in 2013-only gettting rid of puinter stocks I bought under hdfc advise 2 yrs ago in 2013.I am unlikely to make investment wrong decisions as I dwell deep into anything and get to the bottom of things unknown before plunging into purchasing equities esp now that Im very very knowledgable about desired shares for me and undisreable ones very cleary.Happy 2014.
Thanks Vishal! But despite your sound process, it’s difficult to imagine not making mistakes. Anyways, all the best!
Other than my big mistake I shared in last post (Doing a sell instead of a buy on Canara Bank), I have made quite a few mistakes in early 2013.
1) I didn’t take care of shareholding patterns in my software. There is clear historical data to suggest that reduction in promo shareholding or increase in pledging hurts the stock in long term. So I bought Geodesic Ltd at about 16 and sold it at about 10 when I realized how bad a company it is. Now it is at 4 🙂
2) While doing historical research I only used to consider average change with respect to sensex. I didn’t consider average probability of beating the sensex. So some stocks which were too risky were being called good by my software, e.g. if one of three such stocks goes up by 200% but remaining two go down by 40% each, average return is still 40% which is great, but it is still a bad decision because the profit probability is only 33.3%.
Thanks for your comment Abhijeet! All the best for 2014.
My biggest BUY mistake of 2013 was Arshiya International.
I started seeing it at 120 levels. Fair price according to me was appx 90 types. It went down due to mismanagement /corporate governance issues. I bought in at 35 levels.
I shouldn’t have bought it in the first place considering the Debt levels and the kind of debt it had.
When a company is high on Debt we need to check (1) when is it coming due and (2)if the industry/company is in a downturn the company should not have bank debts
I sold Arshiya at a loss of more than 50%! Waited so long to decide! I had not invested much so it was not a dent in my portfolio. But a loss is a loss! And if nothing else, at least I have learnt a lesson which I ll never forget.
Lessons Learnt:
1. Check out the Debt dues and who the Debtors are in a high leverage company. As far as possible it is best to avoid high debt companies. When times are bad and if unpleasant surprises spring up, they are the worst hit. Though I knew all this, this is lesson learnt with experience now.
2. When a company is being offered at a huge discount to fair value, we need to look harder for what we may have missed. Is it a value trap?
3. When a mistake becomes more and more evident as time goes by, sell at the earliest! You do not need to make up for your losses the same way you lost it.
Any thoughts anyone on this company? I may have been wrong in my analysis. Just curious to know.
Dear Parvin, it will be good if you can write these lessons by hand and paste in front of your work-desk or in your investing journal. That’s the way you will always remember them. Regards.
Thanks Vishal! I’d do that right away.
Actually I have my hand written notes and lessons and I do keep revisiting them, but still keeping these HOT TIPS in front of me always would help! 🙂
Indeed Parvin! 🙂 All the best!
I always want to post comments in such threads. But then you say ‘one example’ and I get stuck forever in an analysis paralysis loop to find a ‘good’ or big mistake 🙁
Undersized allocations is one of my primary mistakes. PI Industries has doubled from my buy price, but it has no significant weight in my portfolio. Why did I not buy more? I had anchored myself to the 120-125 price range I first bought it at. I kept saying I will add more if it fell below 120 and it never did. I could have added more at 130-140, but I didn’t. Of course, this is abundantly “clear” once the stock has reached 240. But, would I have said the same thing had the stock remained at 120-140? The important thing for me is not the ‘mistake’ I had made with PI. At the end of the day, it’s a ‘happy mistake’ – I get less money than what I think I somehow ‘deserve’.
But, I keep making several other mistakes as well, some small, some big, not all of which show up in outcomes. I may have unknowingly made a few mistakes and had gotten away due to favorable market conditions or sentiment. When the impact of a mistake is small, it may not hurt much then. But if several of them keep adding up, the impact may be larger than an apparent big mistake. This thinking comes to me from analyzing the impact of cutting several small, repeated expenses on my budget.
May be I should keep a ‘behavioral checklist’ (starting with my well known mistakes from the journal) and review my portfolio using it every 6 months.That is my first new year resolution. My second new year resolution is to start following new year resolutions 😉
All the best in following your resolutions Eswar! 🙂
The mistake you made with PI is what I mad with Asian Paints in 2003 when the stock was selling for around Rs 30 (adjusted price). The day I wanted to buy more of it, the stock went up by 10%, and I dropped the idea of buying more as I was anchored to my original buy price.
Yeah, it’s a good idea of maintaining a “behavioural checklist”, and look at it often to roll over laughing at your own foolishness(es). 😉
I had bought HUL @ 205 sometime in 2000 or so and sold it for around 400 odd two years back. Have not had the guts to buy it again. So a mistake most likely avoided since people are not going to eat soap or detergents !!
I joined your course during the year and hopefully mistakes will become lesser.
Another thing I have learnt over the years is “sell in euphoria, buy in despondency”, be patient and keep your list ready to fish when it seems reasonably right to do so.
I will be much more patient, or should I say try to be.
Wish you a Happy New and “Prosperous” Year to all of you.
All the best Sudhir! Wish you a happy and patience-filled 2014. 🙂
Hey Vishal,
Happy New Year to you in advance. May 2014 be your absolute best year ever.
I went wrong by not loading up enough in the last week of August 2013 when markets were jittery and cheap stocks were available. The Nifty was flashing a buy sign with the TTM P/E at ~ 15 odd which is a safe zone to buy, if not anything, atleast dividend aristocrats. So I did buy (and am super happy for this action of mine), but not as much as I could have bought. One of the reasons for not buying more was that the markets did run back up quite fast, but that doesnt absolve me of not working on my limitation of wanting ‘even cheaper’ prices. It was fun buying even the quantities I did when everybody was panicking, but the lesson learnt is that market bottoms do not announce their arrivals, so buy as much as possible when there is panic and do not care a damn for being most active “only” when markets are completely in the doldrums (like for eg during Oct 08 to Mar 09 periods)!
Cheers,
Sam, made the same exact mistake :D..Birds of a feather 😀
We all suffer from the “Hindsight 20-20” disease…Sam, Nishanth! 🙂
Bought APW Preseident Systems at Rs.200 because the promoters announced buyback for de-listing at Rs.250. The de-listing failed, because not enough shares were tendered for buyback. Kept holding even after the failed buyback becuase I thought the stock was cheap. It is now at Rs.89.
Lesson – When the original reason why you invested in the stock is no longer valid, just get out. Do not hang on and try to justify it with a totally new thesis.
That’s what Buffett also proposes Ajit. All the best!
Arshiya was 2012 lesson which ensured me i dont own any kind of business with huge debt in their sheet.
This year there was a different kind of learning. I had valuation plays in three stock which i realized was under priced due to many factors by market and i even bought those at right time.
But i did not hold on to them as my other long term holding looked attractive to add more. So i sold these valuation plays with small loss to buy my long term bets.
The whole problem was due to Captial Allocation problem in my portfolio. I did not have clear defined rules established for the amount to be invested in short term/valuation plays against long term excellent business.
Hence i missed the short term plays . The short term stocks i am talking about are Cinemax, Sabero Organics and Liberty Phosphate
All of them have more than doubled after i sold them :).
Wish you better times in 2104, Prabeesh. 🙂
Hi Vishal,
This is my personal view and analysis. I don’t think you have correctly followed what Graham’s advise and that is the reason why you have ended without any gain. Graham always suggested individual investor to buy stocks that are close to book value. So the first mistake you made was that you should not have purchased stock at Rs.405 which was quite higher compared to its book value. There was absolutely no margin of safety with your purchase. There might be chances that price of stock might have fallen sharply below 400 which did not happen luckily as we saw in lots of mid caps fell during June 2013. Had you done the purchase correctly , you would have ended with decent gain even during march 2013. Please don’t blame on Graham . I am a strict value investor and my investment methods are greatly influenced and benefited by Benjamin Graham’s strategies.
Thanks & Regards,
Suresh.
Suresh, if you read my post carefully, I have not blamed Graham at all.
In fact, I mixed Buffett’s principle of purchasing quality business (which Swaraj was) with Graham’s principle of selling at 50% gain or 2-3 years whichever is earlier.
So the blame lies on my fuzzy thinking.
Relatively speaking, have kept myself away from mistakes in 2013. Turning point was attending Safal Niveshak workshop and since then opting for a disciplined and conservative approach.
Great to know that Sanju! All the best for 2014 and beyond.
Vishal,
If you recall, I had discussed this stock with you sometime back ( when it was at stagnant price levels) and I remember your exact words” I got impatient and sold for a 10% gain in 3 years” . 2 days after that , I went ahead and bought Swaraj Engines. So the 2nd price chart is applicable in case of my stock portfolio 😀
But as another reader mentioned above , I also suffered the problem of undersizing my investment and bought only a comparatively insignificant amount.So even though Swaraj Engines is one of the best performers in my portfolio,it is not making much impact due to the sizing. I should have bought more , really ( Hindsight bias :))
But the learning here is , if you have done your homework and the stock looks fairly priced or cheap in terms to it;s intrinsic value and earnings power , go ahead and buy a sizeable amount , an amount to make your time and effort worthwhile.I will make sure not to repeat this mistake again.
Indeed Nishanth! It’s only when money and enterprise meet that real profits are made.
Hi Vishal,
Sorry for digressing from the topic, but have to thank you for this piece of info about Graham’s principle of selling at 50% gain or 2-3 years whichever is earlier.
Whatever I’ve read so far about investing always harp on looooong term investing where long-term is more than 10 years.
It was so nice to read this statement that too with the genius’s name stamped on it.
Now on the topic – I’m happy to share that my mistake of 2013 (half year since started only in August) was not putting enough money on stocks that I shortlisted. Being a newbie self-confidence was (a lot) on the lower side. So all the gains are quite insignificant in terms of rupees but very significant in terms of % returns.
Thank you for all the info sharing. I believe it has contributed to my understanding of this world.
Happy new year !!
Roshni, you ought to remember the entire set of conditions Graham’s laid out, Vishal’s referred to only one out of the two main. Refer this link.
Best,
Thanks for the link, Sam.
I’m sure there’s plenty for me to learn. Am grateful for people like Vishal and you for spending the time n effort to help me increase my knowledge.
Thank you Sam for sharing the Graham link with Roshni.
Roshni, since you are a newbie, it’s key that you don’t give much importance to these short term gains (or losses) and instead keep investing at regular intervals and let the power of long term compounding work for you.
In fact, in investing, it’s mostly good to go ahead with low confidence than over-confidence. 🙂
Another of the undersized allocation mistake. I own a miniscule share of Tech Mahindra (embarrassed to even say how many shares). Sitting on around 50+% gain in a very short period of time. Mistakes:
1. Anchoring to my earlier low price.
2. Not believing my research and allocating a tiny amount of capital. It sucks to even think that I hold cash (liquid fund) of nearly 2.5 times the capital I’ve allocated to it. 50% return versus 3% return for the same period!
3. If you know what you’re owing, better to have a tight portfolio than own a “zoo.” I would’ve put more capital to Tech M than to even think of diversification.
It is a tough world out there and I just love it. Markets have thought me so much and maybe this mistake is the tuition fee.
Ash, thanks for sharing your mistake and the lessons learned. Have a better 2014!
Ben’s Intelligent Investor is bible in parts – stock as ownership in a company, margin of safety and concept of Mr. Market, but more or less that’s about it. I believe (based out of my own experience) it is inefficient to follow Ben’s form of value investing and his definition of value. Buffet had admitted that subtly and he has moved on. Math is on the side of Phil Fisher, modern Warren Buffet, Rakesh J and Charlie Munger – value is about the future value of the company discounted to current time & not about discount to net current assets. Unlearning what I learnt from Ben’s book has been a lot of effort for me – I was a sucker for low P/E. P/B, margin of safety in terms of current assets etc. Ben advised to hold of for 3 years in case we apply ‘Ben’s value’ – the definition I would like to stay clear of.
Lesson 1: Ignore and unlearn Ben (except the 3 chapters). Read, re-read & re-read Fisher, Buffet, Munger, Lynch, Pat Dorsey
Lesson 2: To understand Buffet/Munger, read ALL their FAQs, their annual letters including WESCO, their interviews – there is NO short cut. Any book about Buffet is to be avoided – they interpret him in their own way, which Buffet never intended/meant or has moved on. Even Snowball has Alice’s interpretations.
Forward to 2013: I taught myself to think of out the ‘Ben’. So, no repeat mistakes of 2012 and earlier. But made different mistakes.
1. Bought into Thangamayil Jewelry. Under estimated the potential of government to kill a business. Few simple rule changes: mandatory exports, increasing taxes, PAN numbers for gold are enough to kill a honest player. I was aware of their slightly too aggressive expansion using loans for WC, paying a handsome dividend instead of paying off the debt but again chose to gloss over them – the company could have still done fine if not for government intervention. Sold it a little too late because of activity paralysis.Lesson: Never trade against the central bank or government. I had read this from ‘Reminiscences of a stock operator’ but did not take the advice seriously.
2. Bought Zylog, when it was in operation table without knowing complete details of their ground level situation. I realized my mistake and sold it immediately. Luckily, no significant damage done. Lesson: Buy a company in operation table only when you know as much as the operating doctor.
Luckily, in 2013, the good things far outweighed the mistakes. But, as they say, stock market is about future. I have started to think hard on how to lose money in 2014 – so that I don’t get there – 1) Attribute 2013 luck to ability 2) Expect high returns of 2013 in 2014 3) Pursue new investing models without realizing their pitfalls.
One new model I intend to try in 2014 is good companies which have reported a flat growth in the past few years but new capex is almost ready to be rolled out or a new positive industry specific situation, which could double their earnings in next 1-2 years. I am yet to study their pitfalls – so, no serious investment yet. Comments welcome on the new model, if someone has been there, done that and made some mistakes.
Subbu, this is valuable stuff for all readers out here. Thanks for sharing!
Hello Investors,
Vishal very nice article again.
The biggest mistake in 2013 was Power Finance Corporation (PFC).
Bought it at 130..then at 125. The stock started plummeting near to 100. Sold it near 105 at a loss.
Stock went up to 140’s level again.
Lesson Learnt : BE PATIENT.
Thank you.
Patience is the biggest virtue in investing, Pratik! So a nice lesson learnt. 🙂
Hi Vishal,
“Be extremely patient with businesses with sound underlying economics”
I more or less agree with above lesson, but if you see overall return you could have earned after 60% run up is only 15% CAGR for 2 years and 9 months not exactly the kind of return from a quality company and involving with lot of patience while invested considering the opportunity cost that too when we are in kind of a bull run where many stocks have run up by more than 30 to 50% in past 6 months.
Regards,
Dinesh
I wouldn’t have sold the stock after this run up Dinesh! 🙂
The connected question then is – Am I buying the stock at the current price? No, as I am 100% invested.
The biggest mistake was giving less time in reading annual reports of already invested companies and not updating myself in value investing …
other than that,
1. Not selling JK Agri Genetics @500 levels after its demerger with Florense Investech..now it is at 320 level..
2. Investing in Mangalam cements by following tips from a blog without doing any analysis @190..now its at 109…
3. Investing in Gvk Power despite of its high debt ratio….thinking power sector will shine…
@ the end..I can see all the event based investing resulted in net loss in this year..due to my negligence in follow up’s post the event….
All the best for 2014, Ravi!
Dear Vishal , knowing your website and signing was best thing happen to me. I watched yes bank from around 480 levels ,was ready to buy around 400… than you know all story, it went down to 220-30 levels ,still I didn’t buy , most analyst screaming to keep away from it… I m in stocks since 22 yrs. Still I got scared , somehow entered at 257 only to get out at 295 in 15 days or so.it went to 400 level. Now I m waiting for it to come to 300-310 to enter for bit long term.
Thanks for your kind words and for sharing your experience Dr. Ahuja! All the best for 2014!
I have started investing in stock since Feb 2013 as I was debt free (I have paid my home loan in Sep 2012 before birth of my daughter “Jal”) at that moment.
I did following mistake
1. Brought GSPL 1400 and IOC 420 quantity within 1 first month as I was thinking if I don’t invest now I will miss the bus. So these 2 stocks are occupying 80% of my portfolio. Now both the stocks are down so do my portfolio is down by 20%. I still believe it is good business but if I would have shown little patience I would have brought it at better price.
2. After I did lot of analysis on Indian banks when they are all time low but didn’t buy anything. I missed bank of India, PNB when they were at 126, 404 respectively and I was having CASH to buy at that time.
3. BHEL my average cost is 136 but I did not brought BHEL at 108 or so as I was doing lot of unnecessary mathematical calculation. Also In future I will buy such business in big quantity when they come to bargain price.
4. I didn’t listen to my wife she worked in pharm sector n suggested JB chemical and other pharmaceutical business but I think we both were very immature.
Learning in 2013.
1. Do not listen to you emotions and wait until you are so sure. But once you’re sure then buy substantial amount of quantity (units@50000 Rs)
Pls read “One Up on Wall Street” by Peter Lynch….
He emphasizes that we should look for strong trends & companies from our own field of work…. You have the most trustworthy & reliable information…..
That’s a very important lesson Sameer. Thanks for sharing!
The stock, bond, commodity and currency exchanges have been reduced to gambling dens whereby the more powerful traders with deep pockets move the markets to maximize their own profits at the expense of the remaining not so powerful players. The big boys have enormous money power to move the markets in the direction which results in maximum profits for themselves. They effectively use the media to lure the other players in the market to a position where they would incur maximum loss.
The markets continue to rise till all short positions in the market are covered and the majority of traders move to the long side. Once this is done the market falls till all long positions are closed and short positions undertaken. Then rinse and repeat. The price mechanism has little to do with the actual demand, supply, fundamentals or state of the economy.
Hi Vishal,
I have also been an investor in Swaraj Engines for the last three years and luckily, I managed to be patient. Swaraj Engines was at 450-500 levels when good tractor numbers started coming in for M&M and Escorts. And hence, I do think there were enough reasons to be patient. Also, where do you get a Balance Sheet like Swaraj Engines? As a CA, I almost fell in love with the Balance Sheet (though the flip-side of it could be that why M&M allows it to have that Balance Sheet – may be because of KOEL?).
The problem with analysing mistakes Vishal is that a certain stock market movement makes us feel that it was a mistake. What if the money you got from selling Swaraj and put it into say a Company which gives a much higher compound rate of return than Swaraj over the next 10 years. Would you still maintain that Swaraj is a mistake? When Swaraj was at 405, VST TIllers and Tractors was at 380 (also a good Balance Sheet and great valuation). What if you shifted from Swaraj to VST. Is that a mistake? VST has done better than Swaraj in the last 6 months.
A lot of times I feel that we brand something as a mistake and say we learnt from it. The next time we act in a way to avoid the earlier mistake, but sometimes, we later realize that even this reformed behavior was a mistake. The point I am trying to make is that true test of a mistake is only when you have at-least a 5 year price movement to say that this was surely a mistake. What if rainfall is bad next year and tractor sales drop and Swaraj goes back to 350. Would selling Swaraj still be a mistake?
Some things where price movement did not support me (though I am not sure whether it is a mistake):
1. I sold Suprajit at 35. I had doubled my money and thought that a Company just making a simple product like cables for two-wheelers is expensive at close to 10 times earnings. Today, stock is at 52. Learnings: If some Company is growing consistently at a robust pace, sell only when it gets really expensive, not when it gets just fairly prices.
2. I sold 20% of my position in Wabco India Limited at 1700. I had bought this stock 3 years back with a promise made to myself that I will not sell it for 10 years. Commercial vehicle sales have been very very bad (almost 70% down since peak in 2011) and this promise I had made to myself was tested. Fear overtook everything and I panicked off-loading 20% of my position at 1650-1700. Then, there were talks of ABS being mandatory, turnaround in CV, etc and stock is above 2000. Learning: When you have a Moat Company, time is going to be your friend. And just don’t love your money so much that you are shit scared about what will happen if there is a 30% fall. As, Buffet says, if you are net savers, you should prefer lower stock prices, not higher.
Thanks a lot Vishal for poking me to analyse the year gone by.
Friend…. You are giving importance to the results and not the process…. Its only the process we can control and not the results…. Though it is important to look at the results periodically to confirm that your process is right but the ‘Amount of return’ I dont think is the correct measure of your process…..
Higher returns dont necessarily mean a correct process…
Yes, exactly. So, doesen’t Vishal’s process say that hold for 50% or 3 years whichever is earlier. And he rightly followed the process. So, why should he think that it is a mistake? Isn’t the movement in stock price leading him to that conclusion?
I totally agree that if you follow a process, you should not feel that opportunities outside the process and opportunities that the process does not capture are mistakes.
Yes, the purchase made by him clearly showed that he was not a value investor. He did just like any other stock investor who followed the crowd and there was no rational judgement over his purchase. He purchased the stock when the price was high and exited when it was to about to fall which is opposite to value investor approach.
Graham said, First Think correctly and second think independently from the crowd to be a value investor.
Happy new year to everyone !
I think Vishal construed this 3years/50% thing when the stock didnt seem to move…. That was not the criteria for exit during the entry…
If during entry Vishal had put up the exit condition as 3Years/50%…… then it really isnt a mistake…
Upto VIshal now….
Good point Gladiator. So many times, when we want to “sell” because of our behavioral issues (could just be frustration because the stock has not done anything) but have no real fundamental reason to do so, we take comfort in something Buffett, Munger, Graham, Marks, Fisher, Klarman, Marks has said and just convince ourselves that we are following their preaching and thus, feel selling is “justified” .
Our behavioral biases creep up very unknowingly and subconsciously. When I analyse my past mistakes, this becomes very evident to me. To even understand that a trait inherited by us from our hunter-gatherer ancestors (fear, greed, comfort in crowds, etc) is forcing us to take a decision when rationality would not require us to take a decision, is critical towards being a good investor,
One of the key things to learn from “Buffett” is to pre-determine your expectations and checking your performance against that and not against anything else…. As long as you are meeting your expectations(giving they are not absurd) you are not making a mistake…. you can fine tune yourself to perform better and then increase the hurdle rate, thats called improving & learning every day 🙂
That’s true Gladiator, while I have rarely applied this 50%/3 years thing to my stocks, I did it with Swaraj and despite the fact that I had bought it from a moat perspective and not on a quantitative basis to be sold as per Graham’s principle.
So, to repeat, my mistake was to mix the two philosophies, not selling before the stock moved up.
Rather than focusing on any one mistake of 2013…. would take this time to reflect on my mistakes and learnings from my small investment & Trading career of 3-4 years…
1. Selling high rising stocks and buying stocks coz they are at 52-week lows – It actually pays better to do the reverse but that’s not how you select your stock.
2. Learnt to avoid high debt companies
3. Learnt to avoid Public/Govt. companies
4. It is important to look at sectoral trends.
5. Make sizable bets and don’t have a portfolio of too many stocks… My personal limit is 10 stocks.
6. Follow the story quarterly.
7. Avoiding Price anchoring.
One of the biggest lessons of 2013 should be about “Time in the Market and not exactly Timing the Market”….
This blog post says something very simple but very profound. Have to Persistent and Consistent to acheive what you want to acheive.
Dear Vishal and Tibesmen,
First of all, wishing all of you and your families a very Happy, Prosperous and Blessed Year- 2014.
The best thing that could have happened to me in 2013 was to become a tribesman of Safal Niveshak (SN). Never ever, I got the dose of such worldly wisdom and investing knowledge elsewhere, before I became a SN follower.
My Biggest investing mistake in 2013 was not being patient enough with a great stock, great brand with best management. I bought 150 shares of TATA Steel at 264 in 1st week of July 2013 after its relentless fall from 400+ levels. It further fell below 200 levels in August 2013. I advised many of my friends to buy at that level but could not buy because of shortage of funds. It started to bounce back and rose to around 300+ in August itself and then again retraced back to 270+ levels in September. Fearing another down-slide because of huge debt (to fund Corus takeover), Cyclic nature of commodity, QE Taper and its effect on India etc. (all crap and noise), I sold my entire holding in October -13 around 315 and it rose to 400+ levels in November 13.
See this.
Lessons-
1. Be extremely patient with businesses with great history ( its 100 years old company and may be there for another 100 years ), great management, great brand.
2. Buy large quantities when you are convinced that a great business is available for discount sale.
3. Become an investor whose ownership period is years, not a trader who trades within few months.
Sharing story of a great and reticent Indian investor who compounded the money from 9 Lakhs to 38 crore in 23 years- 1991-2000 (30% compounded), 2004-present (25% compounded)
With regards
Akhilesh Pathak
You have been kind enough Akhilesh. 🙂
Thanks for sharing your mistakes and lessons…and also about Megh Manseta. I had the privilege of meeting and talking to him at a recent conference in Mumbai. Regards.
2013 has been the year of minimum activity from my side. Although my entire net worth is in stocks,I bough only one company this year and sold two.I need to wait for 2-3 years to analyze these moves.So I can post my 2014 mistakes only in 2016 or 2017 🙂
Thanks Rakesh!
Hi Vishal, its always insightful to read your emails, I have been reading all your reports with out fail although I am not a big fan of reading because of the value you bring to the table. ….my mistake during 2013 was that knowing some stocks are available at attractive levels (especially banking), did not buy reasonable quantity to make a difference to the portfolio. .
Thanks Suman, and all the best for 2014 and beyond.
Nice post and it made me to introspect. New Year Greetings to all. After a long pause into equity investments, felt to make foray into MFs and invested a good amount (nearly a million) through SIP in HDFC Midcap opportunities. I just trusted the HDFC brand, track record, rating, fund manager and size. I exited with 20K loss after 2 years of SIP. While 2 yrs is not a great time frame, I don’t have any regrets. Even with current market rally, it proved a dud. Looks like couple of calls the fund had taken gone seriously wrong and they missed out IT rally. Here are my lessons learnt:
I could have invested in low cost index fund. It would have given me diversified and large cap exposure.
Should have been looked into other fund houses too. Blind trust on one brand limited my option. Not sure why, am bit scared of procedural hassles with other fund houses.
The obvious high expense ratio was ignored in the name of high risk vs high rewards. It hurts investors badly when the fund takes the beating.
Hi Vishal,
Today in the morning I was re-reading your old post where you interviewed Prof Bakshi. It was an excellent interview, as beginners like us can get a lot of starting points from that interview. He made a remark on Graham’s style where Graham would advise to invest in dirt cheap stocks, sometimes penny stocks. Graham used to hold them for three years or 50% return, whichever is earlier. As in that case he was not sure, which of them will do well, as the underlying business was not so favorable. But in our case, Swaraj Engines, I guess is a fundamentally sound company. So applying that theory for a sound company is not a good idea for us. I may be wrong, in my observation, as I am just a beginer trying to grasp as much as I can. It would be nice to get a response from you on that, as it would only further help me in my understanding. Thanks for this insightful post.
Hi,
I bought TCS approx at 1050 and kept it for several months. during this time, it howers several times between 1000 Rs to 1400 Rs.
Finally i lost patience and sold it on 1450 once, and buy “Yes Bank” on 495 Rs / share. Yes Bank came first time below 500 Rs/share during that time.
Generally I do not sell shares with this temptation. I still repent that decision.
Regards
Peeyush
Hi Vishal,
I been following your blogs its awesome experience you share with us, After reading various value investors I tend to come up with list of value stock and create a position in it but tend to sell it before enjoying the full return.
eg:
1)gayatri project bought 900@50 but sold @ 65 now price is 160+
2)IFGL was holding this stock for 2 years 300@ 45 but sold @ 49 now stock is@100+
3)selan exploration was holding this stock for a month 150@ 370 but sold @ 395 now stock is @ 600+
etc
Things learned from above mistakes is:
Even if GOD gave you the next 10 bagger stock will not help you make rich. Its how long you are willing to hold that stock will decide your fate to richness.
My biggest mistake was many years ago when I bought Alok Industries for technical reasons and then when it fell justified holding on to it for fundamental reasons. I lost 75% of my investment. I’m no technical analyst but Alok’s rapid rise made it too tempting. This setback helped me tremendously, I took a clinical look at my stock picking strategies and I’ve recouped my losses through Swaraj Engines, Repco, Eicher and Page.