I had been deliberating initiation of a thread discussing mistakes. However, I came across this thread a couple of days ago. And, I couldn’t be happier.
I’ve tried and recalled by mistakes, errors of judgement in my short exposure to capital markets.
I started taking a keen interest in markets in 2012.
My trading and investment decisions were based on stock recommendations offered by analysts on TV channels.
The returns generated were decent. I truly wondered why people thought trading/investing was difficult. I thought I had discovered the recipe for success in stock markets. It was easy. It required little effort from my end. All I had to do was imitate the analyst’s stock pick. Things were great. Until one day. The stock picks recommended for intraday started failing. It was unfathomable to me that I was losing so much money. I started revenge trading. Lost even more money. Whatever profits I had generated were evaporated in a relatively short duration. I could’ve never imagined such an outcome.
In hindsight I should’ve thought that there’s never a free lunch. Why would anyone offer their stock picks without anything in return?
Lesson: Trust no one blindly. Assess, examine trading/ investment decisions.
Every action of assistance, guidance towards us in the stock market should be looked at with glasses of cynicism. It’s a brutal place.
On a popular stock app there’s a bustling interaction medium. Stock picks are often offered for free and people wax eloquent about the tremendous potential the company possesses to multiply our wealth.
I came across one such message recommending investment in an investment company. It’d be inappropriate to share the stock pick.
The stock was described as being at the cusp of a great transition to being a large cap company. Messages loaded with superlatives describing the management bombarded the board. It seemed like the ideal investment opportunity.
I trusted them and invested 10 % of my portfolio.
The stock went from X to 3X in 5 months.
My happiness knew no bounds. I was ecstatic.
I continued averaging at upper levels expecting even more upside.
One day, the stock began its downward slide. Lower circuit after lower circuit. Surveillance measures were taken by the exchange and moved to 5% circuit. The fall was excruciating. It stopped when it reached 1.5 X.
I continued to average. Since, I had purchased heavily at upper levels my average price became very high. Losses incurred were significant. The fall wasn’t arrested yet. It kept falling. The stock had formed 35% of my portfolio. My portfolio was painted in red. There was little chance the stock would regain its past glory. I had to book my losses. It dawned on me that the stock move was a meticulously engineered operation by bigger investors. I had invested by trusting someone else. Not on my own conviction. Because of this the grief was even more.
Lesson 2: If possible avoid excessive concentration in any stock pick. Conditions can deteriorate at any point.
Introduce adequate safeguards to protect profits.
Booking profits will reduce cost of carry.
It was my greed that destroyed my portfolio.
It’s difficult to tame greed but those who succeeed at doing so will likely emerge victorious in the market.
In 2016, I came across a petrochemical company which was showing some signs of a turnaround.
Anti dumping duty was going to be imposed sooner than later and company’s financials would improve.
I invested based on this thesis. Management seemed to be decent. I invested 15% of my portfolio. It was my first turnaround investment.
When the results were declared the turnaround wasn’t very convincing. Instead of waiting and appreciating that turnarounds take time I exited my holdings.
I had purchased at X. I exited at 1.3 X. A 30 % profit. It seemed a healthy return to me in 3-4 months.
The same company, in the next 7 quarters underwent an extraordinary turnaround. From losses to double digit profit margins. And, the stock went from X to 5X.
I couldn’t believe my eyes. I blamed my luck and derived solace that I had some profit. But, heart of hearts I knew I had made a massive error of judgement.
Lesson: Be patient. If you’re convinced about a stock after enough research stay invested for some time. Investments take time to mature, to grow.
In investments without conviction profit booking would be sensible. But, if enough conviction has been developed- Be patient, do nothing.
Sometimes inactivity is better than activity.
Here, I was a victim of fear of losing money. Hence, sold too early.
Fear and greed are major causes of bad decisions.
An important lesson I learned is appreciating the role of luck and the limitations of our expertise.
I, have often mistaken my luck for skill. And, it has cost me a lot.
Stock trading/ investing is an incredibly complicated activity. There are so many variables involved that it’s difficult for linear thinkers like us to piece the information and take rational decisions.
To simplify the task, we resort to substituting difficult questions for easy ones.
Instead of analyzing a company based on its financials I’ll check if I like the product manufactured by that company and invest based on that.
I’ve succumbed to it often.
And, needless to say, I lost money.
Also, being rigid is harmful to us.
Despite knowing that a strategy doesn’t work, I refused to accept it. I suffered from the illusion of validity.
Acceptance is crucial for success.
Most factors are beyond our control. Frankly, there’s hardly anything in our control.
I stopped thinking of myself as a person who has everything in control and accepted the fact that I was at the mercy of variables I could do nothing about.
This change in behavior, approach helped me.
I started appreciating the contribution of luck in success.
From where we’re born, the upbringing we receive , the socioeconomic status are rarely in our control.
And,these factors play an instrumental role in moulding the future behavioral patterns of a person.
Lesson 4: The lesson I learned is that I should shed my delusion of being in control and acknowledge that despite my best efforts there will be consequences totally opposite to my expectations.
The most important lesson I learned is that I should have realistic expectations.
Stock markets aren’t get rich quick schemes.
It’s a way to participate in the growth story of a real business.
For an ordinary person like me it’s impossible to sustain 20% CAGR for long durations.
I tempered my expectations to 10-11% over the long term.
After all, what causes pain- When expectations are not met we suffer from pain, grief.
Solution is to have low expectations. If the outcome is better than our expectations our joy will be indescribable.
I humbly share the lessons I’ve learned. This forum has played an instrumental role in my growth as a person. My heartfelt thanks to each and every member here. This forum has helped me realize that there’s always something to learn. This forum taught me that there’s always someone better from whom we can learn.
It taught me that even veterans in investing are constantly acquiring knowledge.
Before my introduction to Valuepickr I spent a lot of time on social networking sites scanning the tweets of investors.
But, the forum helped me grow as an investor thanks to the massive collection of structured information which is constantly updated by members.
Yet again, my gratitude to all.
My apologies if I’ve erred.