Public Humiliation :)

27th Mar '18 by matylda

20 comments 4530 reads

Just shows how even after 25+ years you can still ***** it up by ignoring your rules (no matter how simple they are).

Rule number 1 - Never invest in a company not making a profit no matter how great YOU think it is going to be. Remember, if it's going to be a truly great company it will first make a profit, then you can get involved (and hopefully make lots of money) - Once it's proven itself!

Rule number 2 - If it's down 20%, worst case 25% - GET OUT!

Rule number 3 - Don't average down.

Luckily I only broke rules 1 and 2.

Just want to hold my hands up in public to enforce the message to myself and to perhaps share with those "newer" to investing. Even after many, many years, there's still plenty of opportunity to ***** it up if you break some (simple) rules!

Hope others have not been so ~~unlucky~~ stupid!

ps - I know with Rule number 1 I will sometimes miss a big move but, if it is to be a great company, I will more than likely catch the biggest move of all, with much less risk.

I know it's not everyone's cup of tea but do please share your thoughts and comments on the above should you wish and perhaps - What's your most recent ***** up?

In the spirit of learning from the collective...

Edit: For the record, down about 50% on a, thankfully, speculative, small opening position so no huge damage done - And more than offset by the rise in GAME Digital (LON:GMD) today!

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tomg23

27th Mar '18

Thanks for sharing matylda. My most recent has been on softcat. Bought at the open on results last week before getting on the tube. When I got to my destination 3 stops away I opened up my account to find I was 10% down on what seemed great results. I closed out immediately licking my wounds. What's now compounding the misery is that now the price has miraculously recovered over a few sessions and is now above my initial purchase price. We live and learn and you need these lessons to be able to survive in the long term

All the best
Tom

The Phoenix

Hi agree with everything you say throw in my other rules avoid sub 50 mil market cap, avoid most small mining, oil and gas, dividend cover over 1.5%, avoid yield over 7% and pe below 5, Avoid anything with high debt ideally look for net cash, current ratio above 1,5, avoid anything where average shares in issue are increasing like confetti.

Most recent ---- up buying into Ironveld about a year ago tiny illquid share, loss making, operating in emerging market, saw price edging up on heavy volume thought something must be up boom nowt and avoided getting out on tight stop now 50% down gone into the long term bottom draw dear oh dear but that is definately the last loss making story stock for me.

Albertos

We all have rules we follow religiously ........... until the next time we find an intriguing share ....... until the next time we find something which has fallen so, so much it must be good value.

Just proves we're human.

Also, perversely, its part of the fun!

Phil

Damian Cannon

I feel your pain matylda. My most recent cock-up was getting taken out of IQE (LON:IQE) for a 27% loss during the shorting attack. My plan was to hold through any volatility until the results came out and then re-assess. However I bottled it when the shorting dossiers came out.

I guess the lesson is that I should stick to my plans and not buy a share just because everyone else is buying it.

Damian

xcity

I'm afraid I don't follow any of the three 'rules'. And I've made more money by breaking them than I have lost.

My own most fundamental rule is not to invest in companies, if I don't think I can trust the management (and honesty is more important than competence).

ricky65

28th Mar '18

Regarding Rule number 2: Minervini says that not cutting losers at a predetermined level of risk costs traders and investors more money than any other mistake. It was once the biggest leak in my game. There's only one way I know to guarantee that I never break the rule: put in an automated stop loss with my broker. I know some people hate stops, especially auto stops. I bet they hate big losses a whole lot more!

Gromley

Rule number 2 - If it's down 20%, worst case 25% - GET OUT!

As an instinctively "VALUE" investor I've always had the view that if the price has fallen and the story not changed I want to BUY MORE not SELL.

Once I got better at filtering out the real dogs, this approach has served me pretty well. Except that it has left me nursing losses for months / years before being finally proven 'right'.

Nowadays, I am happier to sell and watch and rebuy (maybe at a higher price) once the story has started to come true.

Whilst I used to think "wow what a massive bargain, I must buy this before anyone else notices" , now I think "wow what a massive bargain, lets wait until people begin to realise".

None of this however stopped me making an oldbrain decision to buy Connect (LON:CNCT) at 70p. :-(

I console (kid) myself with the fact that this was a small initial position enabling me to really pile in when sentiment turns.

matylda

Thanks all for sharing. I always believe it's good to share both the good and the bad.

runthejoules

Yep I'm in this, made a profit on it when it went up and sold most, still have a remnant because I didn't realise the stoploss had expired! And now this morning, another placing! Oh joy! May as well hold onto it now as it will have tanked at open, let's see if it gets bought or if the licencing works out.

threeputt

For my sins I am back in Gfinity (LON:GFIN) as of yesterday, still poor timing at 12.8 even though I managed to avoid the majority of the loss as I did fear a placing coming having sold out around 20. I do (or did) believe in the tech but starting to doubt now.
I don't always go with the theory of not averaging down, I've managed to get myself out of a few holes this way and especially on good (profitable cash generative) shares where the intial buy was just poor timing and I intend to stay for the longer term, but I take the point on complete 'dogs'.
I think my biggest mistakes were Westminster (LON:WSG) where I went from a big profit to a big loss and clawed most of it back over time, Taptica International (LON:TAP) where I made the mistake of listening to a colleague who didnt rate it at .65p when I did (now £4), and Keywords Studios (LON:KWS) where I missed my entry point under £2 (now £16)

Aislabie

Back in December a blog on this site asked people to name their "total punt" stocks for 2018. Mine were Gfinity (LON:GFIN) and Intercede (LON:IGP) both of which are probably even more of a total punt now than they were then.
For Gfinity the placing that broke cover yesterday is clearly critical and I think it can complete, but it is not helpful that the confidentiality was broken.
I feel there are some echos in the Synety/Cloudcall story as enthusiastic pursuit of the business was carried on with a rather relaxed view of how much investment and time it would take to achieve profitability. Cloudcall seems to be pulling through and has at least allowed a profitable exit, I can see Gfinity taking longer to prove than it expects, but this year will show if there is serious revenue to come in their model.
As "total punts" my investments were appropriately modest in size - they are now much more modest!

tomg23 - that sounds like a classic rise in advance and then sell on news in Softcat (LON:SCT), wait a few days after the results and miraculously the share is rising, this is always one to watch out for and one you'll hopefully experience from

Howard Marx

I think that you need to adjust rule #2 for stock volatility, matylda

After all, a 10% drop in the share price of a stable Utility company will usually contain more information than a 20% drop in a volatile Biotech stock

Thanks for the suggestion, I'm generally happy to have them as is within my rule base where neither Utilities or Biotechs are typical areas I invest in.

timarr

I've been investing for nigh on 30 years and still cock things up occasionally - Accrol Group (LON:ACRL) being the latest example. But generally there are a few simple things that protect you:

Never be in a hurry. Rushing to make decisions engages the old "fight or flight" part of the brain rather than the reflexive intellectual part.
Never chase losses because you're losing. You don't have to make it back the same way you lost it. By all means average down if your analysis shows that the market is mistaken - but remember that the market is right more often than it's wrong.
Don't sell half and run the rest for "free". It's still your capital, treating it like a lottery ticket is simply throwing away hard earned money.
Don't react to every jump or blip in the market. Every trade costs money and the research shows that the more people trade the more they tend to lose - basically people who trade a lot tend to be overconfident and make more mistakes.
Have a plan for when markets fall significantly, don't wait until it happens and then start desperately casting around for someone else to tell you what to do. The best plan is to hold stocks that you're happy to hold through the downturn - but if you're a forced seller because of gearing or psychological weakness then tough, it's your own fault. Don't blame anyone else.
Make sure you can read a balance sheet and a cashflow statement. If you can't you're like a driver that doesn't understand road signs.
Don't fall in love with your shares. They don't love you, But do look for companies with a real competitive advantage - they can make you rich if you can hold through the inevitable dips.
Just because you make money on a share doesn't mean you made a good decision and just because you lose money on a share doesn't mean you made a bad one. There are unknown unknowns out there, sometime luck / crap happens. Be sanguine about outcomes.
Know how much money you've made relative to an index tracker (somewhere between 20% and 50% of investors don't). If you can't beat that baseline after few years stick your money in it and go off and do something you're better at.
Don't trust any system that purports to guarantee good returns. If they were so great then they'd keep them to themselves. Any system or anomaly that is public and works will be arbitraged away by institutions encoding the method into their trading systems.
Small cap stocks offer the best returns because they're less well covered. But they also offer the worst governance and greatest chance of outright failure. Look for trustworthy management and sell at the first sign of anything fishy.
Diversify properly. Buying 15 random stocks isn't enough, you need to either pick properly uncorrelated stocks or have a lot larger portfolio.
Always remember why you're investing. Friends and family are much more important than stock bulletin boards and share price movements.

And good luck!

covkid

Great wisdom Timarr..............much appreciated !

29th Mar '18

Nice one timarr

greyster

Made the same mistake as others here on Softcat (LON:SCT), and sold on results fall, now feel its too expensive to get back in!

Nervously holding TAP.

VegPatch

Agree with you Phil
But would also add in that if you do buy loss makers then make sure they are an appropriately small part of your risk budget.

Banzii

I'm always wary of the FD leaving. Occasionally it is for a valid reason (e.g. terminal illness) but anything around "spending more time with family" is usually a sign that the company is about to hit bad health.

Public Humiliation :)

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Matylda

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