Investing Lessons/"Mistakes" from 2020?

[valueinvestor]

Wondering if any of you had any investing regrets? I've been in the game for almost 5+ years, and sometimes I'm baffled at how stupid I am and was wondering if anyone had a similar circumstance.

Wanted to start a thread on mistakes so maybe future members can learn from - here's mine.

 

Investing Regret#1: Digital Turbine APPS

Why? I was looking at this company from 2018. I understood the mechanics of it and had a friend who worked there and told me assets that the market which was the synergies from the acquisition  that they made. When it was trading at effectively 2-3x PE for a business growing 50% a year, it was incredibly stupid.

 

Why did I miss it? Possibly because I was distracted by my business, as I started one just before the pandemic, and I completely forgot the business existed. So much so that I invested in a basket of friggin Hotels, Cruises, Airlines, Subprime Lenders before transitioning into a long term portfolio.

 

What did I lose? 21x return.

 

Investing Regret#2: Wayfair

Why? I was invested already because I saw how much Amazon invested in furniture compared to Wayfair. Wayfair was investing 2x more. - sold because I was acting like a NAV investor than a value investor.

 

What did I lose? 10x return.

 

Investing Regret#3: Rubicon Project

Why? I invested when it was priced less than cash per share. I'm in the industry and knew that the business intimately and will turn around. Effectively priced single digit P/E. I sold again because I wanted to invest in a basked of FRIGGIN hotels, airplanes, subprime lenders, etc.

 

What did I lose? 30x returns

--------------------------------------------------------------------------------------------

 

Lesson:

Not sure, I was plain stupid - completely forgot about one of these names and the other two were because I thought downside was not capped, but looking back that was completely due to irrationality. I don't know why I wasn't able to figure out that Wayfair will sell more furnitures during the pandemic, it was a matter of waiting another quarter. Rubicon Project was from 2018 and my cost basis was so low, I'm not sure why I sold either. Other than that I sold (embarrassingly to say) because I salivated over the $0.50 cent hard asset dollars versus $0.25 cent soft discounted cash flow dollars.

 

What would I do differently:

 

Get ready for it. It's something that's not said often. I realized working more doesn't equate to more success, especially if it's at the expense of your health. My attention was massively handicapped by my business, as I started it just before the pandemic (impeccable timing right?). I was panicking - hence I was working 60-70 hours a week. Now I work 36 hours on the business, but the other hours is towards working out, taking classes, and overall self-development.

 

Sometimes the requirement of success for a venture is beyond capital and resources, sometimes it's just a matter of time. A good chunk of my business came from purely waiting and being ready to take on work. Sales cycles are funny that way. My team works at home, don't really have a schedule, and for all intensive purposes paid on the value they bring to their customers. They can travel and work remotely, all I ask is send a postcard. As Uncle Warren said, just because you get X women pregnant, doesn't mean you'll get the baby X months faster.

 

Hence, if I took better care of myself by working out, eating well, sleeping, as well as not stressing, I would've gotten to these conclusion faster. However since I was more/less a zombie - I put myself in a position to miss some perfect pitches.

 

I could've gotten away working 40 hours per week and putting the rest into physical well-being and health. Not saying working more hours doesn't have it's benefits, but at the time, I really had no reason to work that much - other than fear.

 

Although, I did tremendously well investment wise and more importantly business-wise in 2020 and I'm healthy in a world where some are really decimated by the pandemic, hence I'm not kicking myself too much. However, I kind of realized that as an investor, especially a long-term investor, health is quite important. Not everyone can be as amazing as Warren and have a diet full of processed food and sugars and still have god-like focus.

 

Hence, health is going to be a priority to me going forward. It was before, but it hasn't resonated and I guess I have to thank COVID. You can't be a great investor if you don't live long. Secondly you can't be a great investor if you're mental acuity is impaired because you're a caffeine-fueled, sleep deprived, fear-ridden zombie. That one lesson cost me hundreds of thousands, if not millions of dollars worth of returns.

[Broeb22]

Do you think there is anything about your process that you would have changed?

 

In general, I caution against drawing too many strong conclusions about your investment process during this particular market swing because I think it made a lot of people look silly and some of those people wouldn't look silly in an alternative version of events, whereas some of my decisions to hold on might look smart now but could have been disastrous. 

 

I know I passed on some things in March/April thinking that we were going to be in for some rough times in the economy (and market).

 

I continue to try and spend less time worrying about the macro environment. It is paralyzing at times and makes everything look like a bad investment because it can always go lower. I have left a lot of money on the table and was unfortunately surrounded by a colleague in my earlier years who was even more cautious than I was already (holding 40% cash for 7+ years, etc.)

 

I don't know if this matches with your investment style, but I like the analogy Peter Lynch gave about investing and 7 stud poker in his book Good to Great. The information available is always evolving, so if you feel like you know a business well enough to invest and think the odds might be there, I have gotten in the practice of buying small positions with the intention to scale up either when prices become more reasonable for a business I like and understand well, or to scale up when a business I know less well begins to give more concrete signs of success.

 

 

 

[rogermunibond]

Sold a position in BYDDY bought at $5 because in April 2020 the outlook for EV and their other businesses seemed to be negative.  Partly driven by wanting to raise cash.

[thepupil]

PINS is probably my biggest sin of omission. Early additions to Office as covid started heating up, was my biggest sin of commission.

 

I was guilty of viewing covid as a shock that would end and something that companies would simply have to bridge through (so I was very focused on things like contractual cash flow and debt structure), rather than thinking of covid as a catalyst for long term secular changes. obviously the degree of those changes is still up for debate, but it wasn't going on in my head in late Feb / early march when i made some stupid and greedy additions to things down only a little bit, which hampered my aggression during the fattest of pitches.

 

 

 

Not buying Pinterest in early April for a very reasonable price ($15 vs $80+ today)

 

I put it on my to do list and never really dug. Should have prioritized it over other things. At the very least, I think the big picture was compelling enough for a starter position.

 

6x on a 2-3% starter would have been nice.

 

I think it was hard for me to venture out of my comfort zone when I was in the trenches of real estate land and only just starting to recover from a 40% drawdown and giant change in fundamentals (and price) of everything i owned.

 

Sent this to a friend on 4/4

So this type of thing is not really my usual fare, but I have it on my list to get to know Pinterest.

 

PINS trades for $7.9 billion with $1.7 billion of cash for an EV of $6 billion.

 

Pinterest has over $1 billion of sales, grew 50% last year, is the country’s thirds largest social network, has MAU = to 14% of Facebook.

 

Do I get it? Not really, but $6 billion is not a lot of money. What interest me about Pinterest is that I can actually kind of sort of make financial sense of it. Optimistic Bloomberg projections get to a 20% EBITDA margin 4-5 years out. On current revenue that would be $200mm so 30x. At $4 billion of revenue (again optimistic Bloomberg projections), 7.5x.

 

What is also interesting is I imagine PINS has lots of exposure to travel and small businesses and is about to see its near term business decline significantly.

 

The confluence of a internet property of high potential strategic value, a net cash balance sheet, a roadmap to actually a reasonable multiple, and terrible near term fundamentals with respect to advertising, lead me to hypothesize this could get super interesting.

 

 

[SharperDingaan]

Just to throw some things out ....

 

Know what you want, and keep your eye on the prize. For most people it's family/community, business, other; and in that order. Over a 3-month period, log how many hours you are spending where, and how many hours within each bucket were 'quality time'. There is a reason why so many NA families are dysfunctional.

 

Passion. Managing the business (CEO) or managing the cheque-book (CFO)?  A key realization, because if you choose CEO; a great many livelihoods are relying on your ongoing acumen - and they deserve your full attention to the task. You may well be good at both, but you can only do one.

 

Partners. Better decisions, division of labour, shared successes, ability to take vacation; all kinds of net benefits, but you have to be able to share leadership. With lots of other strong minded people, across genders, cultures, and demographics. You have a tribe, even if sometimes you might wonder!

 

Sustainability. Every business textbook known to man, advocates that bigger is better; but sadly it's only true in the short-term. The reality of course, is that ultimately -  the business just dies faster; yeast in a sugar solution, being the everyday example. There's a sweet spot for every business - know what it is, and whether it is for you.

 

Most people will come to investing, either from the finance world (CFA, etc), or the business world (MBA, CPA, etc); and often they will be a hybrid of both. Great bones upon which to build something, but you have to make a decision.

 

Choose well, and you will have both a rich and very long life.

L'chaim!

 

SD

 

 

 

 

 

 

 

 

 

 

 

 

[BG2008]

Honestly, if the 2020 episode worked out like 2008/2009, you would not be having these regrets.  The guys who bought Carvana at the lows might have to suffer massive dilution like the banks did in 2008/2009 because the Fed took their time to rescue the banks back then.  Now you have a bunch of youngers guys running around thinking they are geniuses because they are up 100-300% in 2020.  Ask yourself what does the alternative might have look like?  Also you will always miss some incredible bargains during a selloff.  You are not going to catch all the amazing deals or all the Pokemons.  This is simply a part of life.  In 2008/2009, SL Green had dropped from $150 to under $10 and I walked around all over Manhattan going door to door and looking at SL Green buildings.  I couldn't buy because I did not understand how bankruptcy works and how equity can retain value in a bankruptcy.  That was a 10 bagger that I missed out on.  But back then I probably would have gotten a bigger ego and would have winded up doing something dumb with that money anyway. 

 

The stuff that I regret is not buying more Ashtead.  Now that's a really good company with a long runway to grow.  It traded as low as 10 British Pounds and is now at 40.  But it will probably be another 5-10 bagger from here given 5-10 years.  That's the one that I regret not buying at the low and not in bigger size.  I regret not buying more Berry Global and DuPont at the low.  Because I know those companies.  They were existing portfolio companies that I knew were going to be 3-4x in 3-4 years.  No balance sheet issues, good cashflow, etc.  But I decided to diversify into a bit of growth.  Frankly, I have done pretty well there as well.  Now my portfolio is more diversified and the stuff that I bought are up 30-200%.  Overall, I am just happy I didn't blow up and I reallocated pretty well.  Clients are happy.  Sure I don't have the 100% return that a few managers reported.  But I also wasn't the one getting angry phone calls in March and April.  The clients are genuinely happy with what I did last year.  Like Jake Taylor from the Value After hours says "I'm not designed for optimization, I am designed for resiliency and survival" or something like that. 

 

Can't look at what you know today.  Need to remember how you felt in the moment and don't forget that.  The world in March/April was not as clear cut as it is today with vaccines that are 90% effective. 

[Guest cherzeca]

learning from mistakes? si. regrets? non!

 

"if all you've got to live for, is what you left behind, get yourself a powder charge and seal that silver mine"

 

Garcia Jerome J / Hunter Robert C

[shamelesscloner]

Putting on my market timing hat in March and thinking I could just wait until it dropped further. Missed out of Facebook and Uber below my target buy prices.

[drzola]

Purchasing my fathers parents  cottage with 5 acres on Georgian Bay Ontario in 1989 for $850K now worth over $10 million plus or more next door to Eatons summer residence and my place of birth Ugh!

[valueinvestor]

Purchasing my fathers parents  cottage with 5 acres on Georgian Bay Ontario in 1989 for $850K now worth over $10 million plus or more next door to Eatons summer residence and my place of birth Ugh!

 

How’s this a regret? Sounds great! Georgian Bay is beautiful!  ;D

[drzola]

Did not purchase and sunk into lovely Ab and Sk Ugh!

[valueinvestor]

Noooo! Damn. Just felt the pain reading that.

[valueinvestor]

Do you think there is anything about your process that you would have changed?

 

In general, I caution against drawing too many strong conclusions about your investment process during this particular market swing because I think it made a lot of people look silly and some of those people wouldn't look silly in an alternative version of events, whereas some of my decisions to hold on might look smart now but could have been disastrous. 

 

 

Funny enough I've touched upon these scenarios, albeit facetiously in my prior posts. I think my investment process was the same, as mentioned it was diluted, because I was not myself. Hence, I wrote the post because not many talk about the importance of health and mental clarity.

 

As for the edge, again thinking longer than 1.5 years, as this iirc is the average holding period for an equity, as well as thinking about margin/cash-flow profiles ten years out helps. There were alternative scenarios where my investments would've looked disastrous but at the end of the day, if it was that bad - then every equity investment imho would've been disastrous, other than shorts/puts.

[valueinvestor]

Sold a position in BYDDY bought at $5 because in April 2020 the outlook for EV and their other businesses seemed to be negative.  Partly driven by wanting to raise cash.

 

Lesson is to not raise cash during a pandemic? I think it could've worked out for you, if it dipped again.

[valueinvestor]

Honestly, if the 2020 episode worked out like 2008/2009, you would not be having these regrets.

 

It would've worked just fine imho. None of these companies mentioned with the exception of Wayfair required dilution to grow. Amazon worked out fine in 2008.

 

It's something that I've touched upon in prior posts, but not in depth where I entertained the possibility of being 2008. If it was greater than 2008, then we would've been screwed 10x and no investment (even cash) would've been safe except shorts - in that scenario.

 

Again I think as investors, we should optimize and get the most incredible bargains. We may not get it, but perfection is a race where there's no finish line. The purpose of this thread is to talk about how we can have done better, and I feel as such health is one of those important factors.

 

As for not knowing the world back then - you didn't really need to know. There were companies that were going to do fine through the pandemic, I didn't expect them to go 200-1000% in less than a year, but that's how it turned out. 

 

As for companies such as Berry, and Dupont, there are technology suppliers to those companies that you know will grow tremendously well with greater upside potential. I think many are missing the fact that technology is not a novelty, but rather a increasingly important infrastructure asset to compete. Without cloud computing, I don't think some of these companies can survive.

 

The stuff that I regret is not buying more Ashtead.  I regret not buying more Berry Global and DuPont at the low.  Because I know those companies.  They were existing portfolio companies that I knew were going to be 3-4x in 3-4 years.  No balance sheet issues, good cashflow, etc. But I decided to diversify into a bit of growth.

 

I don't think that's a mistake, if you're managing client money. Especially if your world view is that it can get worse, I think it was admirable that you did your best to protect your client's interest. Not many do. I've met managers who would blow their fund up with risky positions because they can get bailed out by the government or family, and start afresh.

 

Was there anything else that prevented you from purchasing Ashtead?

[valueinvestor]

Also to keep the thread organized - if willing, I would like to see:

 

1. What Happened?

2. Why it Happened?

3. How to rectify it in the future.

 

I mostly write these posts for myself, as I feel writing is an important aspect of clearing the mind of noise and solidify your thesis, while reinforcing good lessons and removing bad habits.

 

Here's your chance to do the same?  ;D

[Viking]

Valueinvestor, i know this is a play on words but i think regrets is too strong (and negative) a word to use when evaluating ones investment process over time. I think of it more in terms of ‘lessons’. That then lead to tweaks to ones investment process.

 

I love Buffett’s baseball analogy... about how investors are like baseball players... waiting for the perfect pitch... except there is no three strike rule. In this context not swinging at a fat pitch right down the middle is not a mistake. Because another will be coming, and likely quickly. Preparation and patience is key.

 

The reason i refuse to think in terms of ‘mistakes’ is so i do not develop a negative mindset. That then starts to pollute my investing mental model. My goal is simply to be ready for the next fat pitch right down the middle (which can present itself at any time). And be in a good place mentally to be able to properly capitalize.

 

This is not meant as a criticism of your post or what you are doing. Everyone is wired differently and they needs to find an investing process that fits their intellect and more importantly their emotional makeup.

———————

 

1.) what happened? All insurance stocks sold off and got ridiculously cheap in May.

2.) why it happened? Unknown covid losses was likely big driver. Even though it was pretty clear losses in US would not be catastrophic (UK was where the big problem was because of policy wording).

3.) what did i do? Bought a small amount of WRB and CB and sold for nice, quick single digit gain

4.) rectify in future? Less thumb sucking. Be more aggressive (larger position size; hold for longer).

5.) Apply lesson learned: When Fairfax (again) got wickedly cheap in late October i took advantage and bought a decent sized position. And got very aggressive with position size once vaccine news came out mid November. Still hold very large position (as the news just keeps getting better).

[valueinvestor]

This. You're right - many don't understand the implication that language and wording can have on a person's mind.

 

It lends perspective. Hence I've changed the title --- as suggested in the original post - it's not really about regret, nor mistakes, but rather what we can do to improve next time.

 

Fairfax has been firing on all cylinders for a while, and we're probably going to see a golden era for them soon, if not already.

 

Thumb sucking is one that I learned in 2008. Rectified by Bezos with the following passage:

 

“Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.”

 

 

[Guest cherzeca]

I have a principle, buy on dip.

what is a dip? and how much?

a dip depends on the atmospherics...is there a big reason for dip that scares me? (then dont buy), or a sensible reason for dip that seems to be a normal part of the variability of the market (buy)

how much?....cf sizing. nothing dramatic.

 

ok, now how does regret fit into this scenario when I have a principle for action? ONLY when I dont follow my self-imposed rule. 

 

regret does NOT enter into equation when I am wrong in assessing the situation (eg the dip atmospherics were not that bad and I overestimated the downside), because I accept the fact that I can be wrong.

 

regret only enters into equation when the set up fits my principle and I dont act.  if I dont follow my principle, what am I doing thinking through what my principle should be?

 

then I try like hell to forget about it because regret is a terrible emotion to have...it rots the brain.

 

comes a time to create a new principle...but that is another thread

[DocSnowball]

Also to keep the thread organized - if willing, I would like to see:

 

1. What Happened?

2. Why it Happened?

3. How to rectify it in the future.

 

I mostly write these posts for myself, as I feel writing is an important aspect of clearing the mind of noise and solidify your thesis, while reinforcing good lessons and removing bad habits.

 

Here's your chance to do the same?  ;D

 

One straightforward mistake that I made in 2020 was tactical, on the personal finance front - while I was re-allocating capital during the drawdown in March, I simply made selection changes in my kids 529 accounts to move them from cash to US equity, and after two such moves was told I was not allowed any more changes for 2020.  Looking back, I missed out on pouring in the maximum allowed new annual contribution of $70,000 in each child's accounts simply because I took at face value what I was told on the phone and didn't think about pouring new money in. It would have made a world of difference to put more money in these tax-free Roth IRA like accounts with 10-15 year runways.

 

Another on specific company selection was missing out to emerging platform companies in my field of healthcare - not realizing how Teladoc is on its way to becoming one of the premier platform companies in telemedicine during the pandemic, while knowing well what it had done during the hurricanes in Texas and Puerto Rico. Why it happened - because I didn't think about long term effects of COVID-19, just focused on market timing in March and then held back when markets started going back up. Lesson learned - now I am looking closely at edu-tech companies on their way to becoming the platforms in higher education, TwoU being one of them that I hold - Coursera is another but is not publicly traded yet. Missing out on investing in Google at $1000-1200 was another hare-brained mistake, despite seeing how much of a moat Google was building in the classrooms from elementary education to graduate students.

 

The big picture lesson learned was that it is very difficult to think rationally on a consistent basis in the middle of a storm, there are so many things going on in life. There is a lot of value in thinking of how to make portfolio level changes well ahead of the year that lies ahead. This inspired me to take a course on Investment philosophies in Fall 2020 and reorganize my portfolio. I have also realized that the international financial system is inherently unstable, and hopefully this means more opportunities lie ahead for the brave and well prepared.

[bizaro86]

is there a big reason for dip that scares me? (then dont buy),

 

Has this worked for you in the past?

 

My heuristic of buying a bunch when I'm absolutely terrified has worked great so far. I feel like crap for the duration of the downturn but I make a lot of money. That said, there hasn't been a decade long decline during my investing life.

 

It just seems like not buying when there's a reason for the dip makes it likely that you'll miss all the dips. In that case, something like dollar cost averaging or remaining a specific % invested might be better.

 

[Guest cherzeca]

is there a big reason for dip that scares me? (then dont buy),

 

Has this worked for you in the past?

 

My heuristic of buying a bunch when I'm absolutely terrified has worked great so far. I feel like crap for the duration of the downturn but I make a lot of money. That said, there hasn't been a decade long decline during my investing life.

 

It just seems like not buying when there's a reason for the dip makes it likely that you'll miss all the dips. In that case, something like dollar cost averaging or remaining a specific % invested might be better.

 

I am in safety first mode.  I accept the be greedy when every one is fearful meme, but I dont need to be a hero. my whole point is that if you are worried about regret, or you find yourself regretful too often, then either dont invest (as I think regret is corrosive) or invest with a mindset that acknowledges that you will be wrong in many details at many times...but if you have an ordering principle that works for you, then there should be no regrets...mistakes yes, but no regrets

[Dalal.Holdings]

Do you think there is anything about your process that you would have changed?

 

In general, I caution against drawing too many strong conclusions about your investment process during this particular market swing because I think it made a lot of people look silly and some of those people wouldn't look silly in an alternative version of events, whereas some of my decisions to hold on might look smart now but could have been disastrous. 

 

I know I passed on some things in March/April thinking that we were going to be in for some rough times in the economy (and market).

 

I continue to try and spend less time worrying about the macro environment. It is paralyzing at times and makes everything look like a bad investment because it can always go lower. I have left a lot of money on the table and was unfortunately surrounded by a colleague in my earlier years who was even more cautious than I was already (holding 40% cash for 7+ years, etc.)

 

I don't know if this matches with your investment style, but I like the analogy Peter Lynch gave about investing and 7 stud poker in his book Good to Great. The information available is always evolving, so if you feel like you know a business well enough to invest and think the odds might be there, I have gotten in the practice of buying small positions with the intention to scale up either when prices become more reasonable for a business I like and understand well, or to scale up when a business I know less well begins to give more concrete signs of success.

 

Obviously we disagree about certain individual issues, but this is a good assessment. It's very easy to fool yourself into thinking you made a mistake in the immediate past. Only in the long run do mistakes become apparent. Many folks would have called it a mistake to sit out in 1999-2000 ...

 

You have to think -- given what was known at the time, was my action a mistake or wise? And ignore the outcome especially if it's a short term outcome.

 

I too missed out on RUBI/MGNI, but the jury is still out on whether it will be a long term success story if you ask me

[valueinvestor]

Although I understand that the jury is out - that goes without saying. However, to say that some of these picks could be mistakes in the future is bonkers. Of course, you shouldn't let regret hold you back, but you shouldn't let blindness guide you forward.

 

We all have to work on incomplete information and we're all not psychics.

 

However, to say that jury still out on some of these picks where a 90% decline will only result in a 100% gain on the investment is ludicrous.

 

[valueinvestor]

One straightforward mistake that I made in 2020 was tactical, on the personal finance front - while I was re-allocating capital during the drawdown in March, I simply made selection changes in my kids 529 accounts to move them from cash to US equity, and after two such moves was told I was not allowed any more changes for 2020.  Looking back, I missed out on pouring in the maximum allowed new annual contribution of $70,000 in each child's accounts simply because I took at face value what I was told on the phone and didn't think about pouring new money in. It would have made a world of difference to put more money in these tax-free Roth IRA like accounts with 10-15 year runways.

 

Another on specific company selection was missing out to emerging platform companies in my field of healthcare - not realizing how Teladoc is on its way to becoming one of the premier platform companies in telemedicine during the pandemic, while knowing well what it had done during the hurricanes in Texas and Puerto Rico. Why it happened - because I didn't think about long term effects of COVID-19, just focused on market timing in March and then held back when markets started going back up. Lesson learned - now I am looking closely at edu-tech companies on their way to becoming the platforms in higher education, TwoU being one of them that I hold - Coursera is another but is not publicly traded yet. Missing out on investing in Google at $1000-1200 was another hare-brained mistake, despite seeing how much of a moat Google was building in the classrooms from elementary education to graduate students.

 

The big picture lesson learned was that it is very difficult to think rationally on a consistent basis in the middle of a storm, there are so many things going on in life. There is a lot of value in thinking of how to make portfolio level changes well ahead of the year that lies ahead. This inspired me to take a course on Investment philosophies in Fall 2020 and reorganize my portfolio. I have also realized that the international financial system is inherently unstable, and hopefully, this means more opportunities lie ahead for the brave and well prepared.

 

Yea - there's no one saying that it's too late. It never is.

 

You're not the only one to take information at face value. My friend and I wanted to watch avengers, and I mentioned checking the showtimes to go and watch. She mentioned that she recently saw the trailer and it was due to come out a week later. I still told her to check, because it may be for other audiences - she said the trailer ran on a Canadian channel. Still asked to check anyways - turns out we were both right, in other cities, it was due on that date, but we were close to a theatre that had an early viewing.

 

Lesson: If the information does not come from primary information - take it with a grain of salt.