- 1 Summary
- 2 Introduction
- 3 Warning
- 4 These Are My Truly Expensive Lessons
- 5 Final Thoughts
- 6 Share this:
- You can make lots of money through equity investing even if you make the occasional mistake.
- Minimize the number and the dollar value of your mistakes.
- Learn from your mistakes and don’t repeat them.
- If I can succeed at investing ANYBODY can. Trust me!
A reader recently suggested I share some of my most egregious investment related errors. I was somewhat reluctant at first since I did not want to relive some of these painful experiences. After deliberating for a few days I realized that if I could impart some of my errors/lessons learned and I succeeded in sparing similar grief for another investor then why would I not share my horror stories?
While disclaimers are found at the end of this post I feel it is only fair that you receive advance warning that following some of my investment strategies I applied on the examples contained in this post may lead to disastrous results.
Note that I am not an investment guru. I am just a normal every day guy who had a dream of one day becoming financially free so that an employer would not dictate what I could to do with the vast majority of my time.
I do not provide investment tips. I am not licensed to do so and I have no knowledge of your personal circumstances, risk tolerance, etc..
Just because I failed miserably with investments in certain companies referenced in this post or with certain investment strategies mentioned herein does not mean you will also fail. Many of my investment failures occurred years ago and circumstances may have changed. You may also be far more knowledgeable when it comes to any strategy I implemented that did not pan out as intended.
Finally, before I dive into my “losers”, let it be known that investment mistakes can be achieved through buying and selling. I have found ways to make mistakes both ways!
Here are some of my bone headed moves I can think of at the top of my head.
Aptose Biosciences Inc (TSX: APS)
In 2003, a friend suggested I may want to invest in Lorus Therapeutics (subsequently renamed Aptose Biosciences). The company had an anticancer drug in Phase II of its program pipeline and it was about to embark on a “dog and pony” show to drum interest in the investment community.
I did minimal research on the company yet I knew the mortality rate of companies in this industry is extremely high. In essence, companies need to continually raise equity to finance research until such time as it hopefully develops a product where one of the big pharma players will step into the picture.
I bought 1000 shares at CDN$1.00 and watched it rise to roughly ~CDN$1.30 during the period where the company was trying to raise interest in the investment community.
The stock price hovered in the ~CDN$1.15 – ~CDN$1.25 range for a short period during which time I decided to liquidate my position.
While I walked away with a very small profit, I found myself checking the stock price far too often. Fortunately, I came to the realization within 2 – 3 weeks that I was gambling and not investing.
I still view APS as a stock to avoid.
Interrent Real Estate Investment Trust (TSX: IIP.UN)
Once again…a tip from another friend around the same time as my Aptose (Lorus) investment; I must have been going through a speculative investment phase. Back in 2003, Interrent was a real estate investment trust focused on acquisition, holding, leasing or managing of multi-unit residential properties and real estate ventures. Its focus was on somewhat less desirable properties in smaller municipalities.
I bought 5000 shares at CDN$0.50/share and within 2 months liquidated my position at CDN$0.50/share. I lost money on this transaction if you factor in discount broker trading commissions.
NOTE: In July 2007 there was a 100:1 reverse split which explains the bulk of the huge disparity in the price at the time I executed my trades and the current stock price.
I still view IIP.UN as a stock to avoid.
Some of you may recall when it appeared as if just about every family had a least one family member who wore clothing emblazoned with the Aéropostale logo.
A co-worker and I each decided to invest in the company for the purpose of experimenting with relatively simplistic option strategies.
In early 2010, I bought 200 shares at $33.94 and promptly sold 2 covered calls at ~$1.41/share. Those calls expired worthless and I was able to retain my shares and pocket ~$270 (net of commission). When those calls expired I wrote another 2 covered call contracts at $1.70. Those calls also expired worthless and I kept a little under $340 (net of commission).
Once again, I felt I was wasting too much time monitoring my position and I sold all 200 shares for ~$34. Thankfully I did because it was all downhill for Aéropostale after that.
While on paper I did walk away with a small profit on this investment, I am not taking into account the time I spent monitoring this investment nor the stress it put me through (this investment was far more speculative than that to which I was accustomed).
This company is no longer publicly traded.
Cameco Corporation (TSX: CCO)
In July 2010, I acquired 200 CCJ shares @ CDN$23.62 on the basis of a discussion I had had with a co-worker with whom I was exchanging investment ideas (the same co-worker referenced under Aéropostale); he was far more active than me from a trading perspective.
The stock rocketed to the lower CDN$40s at which time I should have taken my profits given that CCO was not the type of company in which I would generally take a position. What did I do instead? I held on and rode the stock price all the way down until I finally gave up on any potential recovery of my losses. In October 2016, I liquidated my position at CDN$10.46 for a ~CDN$2,630 loss (excluding commission).
I still view CCO as a stock to avoid.
Seaspan Corporation (NYSE: SSW)
I rode the stock all the way up to ~$37 and proceeded to ride it all the way down to $10.01 in February 2010 at which time I liquidated my position for a $5,000 loss. Oh, and by the way, there was a dividend cut during the period in which I held these shares!
I still view SSW as a stock to avoid.
In 2010, I decided to experiment with relatively straightforward option trading strategies. I will admit the course in which I enrolled was very good. The instructors explained their trading strategies and there was an extensive DVD series which explained Option trading in detail. The instructor provided periodic trading recommendations and guidance as to when to open/close a position and the underlying thesis for the recommendation.
The options trading strategies focused on short-term options which would typically expire within 30 – 45 days.
In most cases the underlying companies on which we executed option trades were companies I would never even consider as potential investments. The instructor, however, chose these companies since he was looking for options with a slightly elevated level of volatility thus resulting in slightly higher option premiums.
I stuck with the program for 3 months after which time I came to the realization that option trading was not my investment style. What I found was that extremely little time was spent analyzing the industry and company prior to initiating a trade. When I looked at the companies on which option trades were being executed I quickly came to the realization that less than 1% of the trades being recommended were on companies which would even remotely be of interest to me from a long-term investment perspective.
I much prefer investing for the long-term and I don’t want to be monitoring my holdings on a daily basis with the intent of having to decide whether to buy/sell; I found myself checking the stock charts far too often on a daily basis. I would much prefer to invest in well-managed companies with a track record of profitability and which are shareholder friendly. I am also the type of investor who doesn’t pay much attention to price swings once I hold a position. In fact, if the company is solid and the stock price drops, I view this as a buying opportunity (on the basis that the price decline is not the result of some major permanent impairment to the business).
All in all, I suspect I lost less than $1500 with my foray into options trading when I factor in the cost of the course.
These Are My Truly Expensive Lessons
So far, I have highlighted a few of my “duds” but the pain of each has been relatively modest. Now I get into my bone headed moves which involved a lot more money. In both cases I invested in solid companies but exited my position far too early (I should still own these shares today!).
I will admit the losses are, however, less than what they appear as I took the proceeds of sale and invested in other companies which have gone on to perform admirably.
I still view these examples as lessons on the danger of short-term thinking.
FedEx Corporation (NYSE: FDX)
In late 1999, I acquired a few hundred FDX shares based on the premise that somebody would have to ship all the goods being purchased online (remember that dotcom craze?).
I do not recall the specific date of my purchase but I remember my purchase price was in the low $40s. Shortly subsequent to my purchase, I exited my position when FDX climbed into the upper $40s.
Sure, I made some money but look at FDX’s stock chart and see how much more I could have made if I had just stayed out of the way!
I am currently long FDX.
BB&T (NYSE: BBT), Bank of America (NYSE: BAC), US Bank (NYSE: USB), Wachovia (now Wells Fargo NYSE: WFC)
This was 4 bone head moves made December 20, 2007. Wow, was my timing great! Merry Christmas!
Why did I purchase 1000 shares of each? Because I listened to a former Director of Equity Research for Morningstar and didn’t do any proper research whatsoever.
I bought BBT&T @ $32.31, BAC at $41.95, USB @ $31.97 and Wachovia @ $39.
I wrote a series of profitable covered calls on each bank over several months but by March 2010 I had had enough and I liquidated my BBT, BAC, and USB positions.
While BBT and USB are currently trading higher than when I acquired shares, they both suffered dividend cuts in early 2009 and to this day their dividends are still not at the level at the time of my purchases.
BAC was a disaster and Wachovia was the worst of the 4; it no longer exists. My 1000 Wachovia shares became 199 WFC shares at the beginning of 2009. I still hold them and with dividend reinvestments I now hold 220 shares.
I won’t go through the calculations to determine how much I lost. Just look at the stock charts and learn from my painful experience.
I own shares in the largest 5 Canadian banks and have owned shares in same for years. I don’t need more exposure to the banking sector. I’ll pass on the US banks, thank you (with the exception of WFC)!
Berskhire Hathaway Inc. (NYSE: BRK.b)
This one really hurts.
I acquired 13 shares in BRK.b in 2005, 4 in November 2007, 4 in January 2008, 2 in April 2008, 2 in June 2008, 1 in August 2008, 3 in September 2008, and 1 in January 2010 for a total of 30 shares. After the 50:1 stock split in January 2010 I had 1500 BRK.b shares.
In January 2010 I wrote 15 covered call contracts with a $70 strike price and an expiry of February 2010. I received $1.85/share for a total of $2,775 (before commission).
BRK.b’s stock price subsequently rose and rather than roll forward I panicked and closed out my position on February 17 at a cost of $6.10/share or $9,150 (before commission); I lost $6,375 on the options trades. I then proceeded to sell my BRK.b shares at $75.97/share and received $113,995 (before commission); I do not readily have my average cost but I suspect my average cost was less than $65.
How much pain did I inflict upon myself by throwing discipline by the wayside? Well, look at BRK.b today! As I compose this post, it is trading ~$178. 1500 shares at $178….$267,000! OUCH!
Okay, that is not my total loss since I subsequently invested in other companies which have appreciated in value. Still, that is one bone head move I will never forget.
NOTE: As a retiree I prefer to hold dividend income producing stocks. I do not, therefore, currently own BRK.b. That is not to say I have permanently eliminated BRK.b from my pool of potential investments. I might acquire shares via my Tax Free Savings Account; I won’t have to worry about a 15% withholding tax on dividends paid by US listed companies given that BRK.b does not pay a dividend and I suspect will not in the foreseeable future.
I was somewhat apprehensive to open my kimono to expose some of the bone headed investment moves I have made over the course of time. By doing so, however, I hope that I have been able to demonstrate that it is okay to do foolish things as long as you learn from your mistakes and you keep your mistakes to a minimum (number wise and dollar wise).
While I certainly had no success from an options trading standpoint, that does not mean you can’t make money trading options. Countless investors make money this way. I just found it was not something that appealed to me so I did not become sufficiently proficient at options trading to make any money this way.
I have found that a buy and hold blue chip stocks investment strategy works best for me. I am risk averse and am not prepared to risk my hard earned money on a potential “home run”. I have mentioned this before in previous posts but find it worth repeating here. I realized long ago that if I could bunch together singles and doubles and get a smattering of triples and home runs, I could make enough money to retire early and sustain our standard of living.
As I look back on my worst investments over the course of time I realize they were the result of absolutely no/very minimal, industry, business, and financial risk analysis. On the flip side, when I performed reasonable due diligence and was happy with my findings I pulled the trigger and “stayed out of the way”; I even turned on automatic dividend reinvestment! In essence, the less I did with my investments…the better!
If my investment philosophy and strategy is not for you…no problem. Do what suits your personality and what will meet your goals and objectives.
On a final note, I am relatively fortunate in that my investment winners far outweigh my losers and thus I have been able to retire in my mid-50s. I recognize others have done far better than me but I still count myself as pretty fortunate. The last thing I want to do is take my luck at investing for granted and to become over confident in my investing abilities. I still have a lot to learn and am open to constructive criticism and differing points of view. I, therefore, welcome your feedback, input, and recommendations.
Thanks for reading and I wish you much success.
Note: I sincerely appreciate the time you took to read this post. As always, please leave any feedback and questions you may have in the “Contact Me Here” section to the right.
Disclaimer: I have no knowledge of your individual circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decision without conducting your own research and due diligence. You should also consult your financial advisor about your specific situation.
Disclosure: I am long FDX and WFC.
I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it and have no business relationship with any company whose stock is mentioned in this article.