As 2015 draws to a close, I will like to share some of the lessons learned from investing in 2015. (I will not be mentioning the positions by name. I don’t seek to talk my book; I will prefer that the market discovers them.)
There is something called “being too early”
Baron Rothschild, the legendary 18th century financier, is credited with the saying,”Buy when there’s blood in the streets, even if the blood is your own.” This tends to be my approach regarding investing. I tend to buy in tranches and become more aggressive as prices tumble. I did this with a Nigerian bank which is constantly being trashed by Mr Market and has been effectively trading like a commodity. (The bank is trading at a low not seen in decades.) That bet hasn’t panned out yet. But I expect to make more than 3 times my original investment.
However, I tried catching a falling knife with some exposure to a Canadian oil exploration & production firm in the Alberta tar sands. The company seemed (and is still) cheap from a valuation perspective. However, the value of the firm has kept on falling in tandem with oil. In hindsight, I think, waiting a little longer to see a turnaround in the oil market from larger bankruptcies, a weaker loonie (the Canadian dollar), and Fed tightening would have meant that I could pick up these securities at cheaper prices. I am quite confident in the next 3-5 years I can make a multiples on my money.
Lesson: Be careful when buying falling knives; a much more systematic averaging into positions over months is a better strategy.
Be wary of high-fliers and firms without moats
Some years back, I took a position in a high-flying tech stock listed in London. To cut the long story short, after some activist investors agitation, the company directors admitted to cooking their books. Hence, the firm has stopped trading. In hindsight, I should have taken into account other factors such as its economic moat – the entrenched competitive advantage of the firm – in my valuation of the firm. The company’s stock had being marching higher more than tripling in a few years.
Lesson: Be careful when looking at firms; consider their economic moat in your valuation of a firm; ALWAYS take activist investors seriously as they bring in new information which could change the intrinsic value of the firm.
In all, I have grown wiser and I keep learning a lot.
Wishing everyone, happy holidays and a productive New Year.
Photo credit: Flickr/ Wirawat Lian-Udom, used under a creative commons licence.