Systematic and Unsystematic Mistakes

Hi everyone, we have all heard about the systematic and unsystematic risks involved while looking into businesses, but the above two terms can also be associated with the mistakes that we make in investing, and I would like to share mine with you through this forum :slight_smile:

Unsystematic Mistakes.

  1. Choosing the right business but entering during peak valuations or overstretched margins - can be cured by understanding the technicals associated and understanding the strong demand zones on weekly and monthly time frames to enter for a second time and average down the buying price.

  2. In the case of trend investing, picking the right trend at the right time but with the wrong companies, it is usually the derivative that plays out the safest rather than choosing the best player. Hypothetical Example - if one believes the fashion industry will outgrow, then choosing the company which produces raw materials for all the brands rather than choosing the right brand to invest in.

Systematic Mistakes;

  1. Not understanding a business and investing in it - I have been the victim of the mentioned, especially trying to hop on the crazy gains in the chemical industry.

  2. Buying Naked Options of companies based on some news and reports, that too without a hedge. Well, the destruction is self-explanatory in this case, as that is one of the worst mistakes that Fortunately I was able to afford and learn from and would recommend everyone to never try, is read some news or watch some channels and take actions based on them, especially using derivatives.

Would request everyone to share theirs as it would help the newbies avoid what we certainly couldn’t. :slight_smile:

When market itself is evolving and broadening, participants evolve too, so I guess there is no avoiding everything unless one can experience vicariously, but then again vicarious experiences alone cannot help as they are not felt, and as such they don’t constitute as learning unless one has some experience. We will get wet if we want to go in the waters, there are no two ways about it.

So as one goes forward through months and years, and looks back, and see a trajectory which is satisfactory in terms of both learning and profits, everything is good.

And one who acknowledges mistakes and does not repeat them but learns from them, things are bound to get better, even prosper.

I can relate to what you have said, dabbling, participating, investing, losing etc, right from IPOs to derivatives, and now that I have moved a little forward, I am glad they happened, I am happy I did all of them, because I wouldn’t have been me as a participant, if I did not do them. All part of learning for me.

So I guess what we call mistakes at a point in time, may feel like part of learning with passage of time, but there will be mistakes, misjudgement, even after gaining decades of experience, even for greats like Livermore or Buffett.

So the river of learning will always has the component of mistakes, whose occurrence may become less, and whose impact in monetary terms will have less impact, as one matures.

Just my thoughts.

2 Likes

Good Thread. Alos it prompted me to revisit my 15+ yrs in Equity investment(initial 5-7 yrs re very small amount30-50 K yr)

Buying many stocks and creating portfolio of 25-35 stocks (even if some are good average return is not up to the mark)

  • Buying high debt company (bought Suzlon in the hope of turn around waited for 5 yrs - negative retunrs as on today -
    learning - never buy high leaverage company - I made a rule 0.5 is max D/E to be consider for my PF)

  • in last 15 yrs I have 3 home run (25X, 15X & 10X) but 2 of them are very small amount 10 K one is 60K . Learning - Add new stock PF if you are ready to put sizable amount . now My Rule is Minimum amount for new addition in PF is 1 Lac)

  • List item I am Long term investor (by Default - 5-10 yrs or even more) - for now I am in earning period of my career so not thinking of exit in my PF untill /unless I need money. Learning We need to do exit plan or define freamwork as many a time share gives good retunrs and than come back to singnificantly low level & I miss the Profit booking opportunity (eg Lanco industry bought in 10-15 range went up to 1100 & now we all know the .30 paisa , Tata Elxi - bought at 750 went to 10K & now bak in 6 K level ) Need to define my exit criteria. (Still not done but start learning about it . any good suggestion /strategy some one using please share)

I got into investing very late in life. Its been 1 year since i began the journey.
I began fast and furious buy/sell pattern (not day trading, just impatient to see returns) and saw stocks i identified early and exited due to a small dip, now grow by 40-50% - HEG, Technocraft, Vinyl, Anupam.

Learnt the value of patience the hard way - it really doesnt matter how loud others are on the virtue of patience, we have to learn it ourselves - just like swimming and riding i guess.

Over the past quarter, I’ve mellowed down and no longer sell at the first sign of dips. Happier holding stocks.

I still need to figure out how to bring the stock count to ~10. I am invested in 16-18 stocks and very uncomfortable with the burden this imposes. I like too many firms and now have to start selecting only those that I love!

Update Learning:

Point 2: any new sahre in my PF will be added with minimum 5 Lac corpus.