Lessons learned

[dpetrescu]

I'm still new to value investing and have made a very great deal of mistakes to get to where I am today. What is everyone's biggest personal mistakes and resulting specific lessons learned, with the investment example?

 

Mine are:

1. Never invest in a company with core business threatened to be obsolete by new technology or other secular trend, no matter how attractive the value. There are plenty of opportunities in other companies with a competitive advantage.

EXAMPLE: I invested in Borders because of low market value to earnings and book value. I was aware of the threat of amazon and e-books, I was essentially playing chicken with the brick and mortar decline. This lesson also drove me to my biggest short conviction GME.

 

2. Avoid companies in a great decline with hope of turnaround completely on the shoulders of management or with management plan for significant change. Too difficult. There are plenty of companies that could do well run by idiots, look for those.

EXAMPLE: I invested in JCP because of their high operational margin, underpriced assets and most of all for Ron Johnson's brilliant plan.

 

3. Do not argue with Chanos or Einhorn, even if Klarman or Buffett is on the other side. Avoid these battleground stocks. There are plenty of options they agree on (eg...all except Buffett own MU).  I now consider these two short gurus my pro bono consultants to help me avoid potential disasters.

EXAMPLE: I followed Klarman into HPQ while Chanos was short. It seemed like a great value, had a new great CEO with Meg Whitman. Chanos presented great deal of research why it was in risk of decline, I didn't listen.

 

4. If there is a very high conviction idea, take Buffett's and Soros's advice and use a punchcard, go for the jugular.

EXAMPLE: I invested a little in BAC leaps....a Little. I did learn when I went all in with GM leaps and used my first punchcard.

 

I have a lot more, too many mistakes...