Learning from Past Mistakes

As readers may recall, I sold Elf Beauty last year, and after their subsequent 100% rise I am obviously regretting this decision. I researched the buying of Elf quite extensively when I brought shares, but I think it was the fear of losing money that made me sell them. I brought into them around $110, watched them go down to $90 and then when the shares recovered back to $110 I decided to sell. With Elf's price now sitting at just below $200, it is clear that I sold way too soon. Warren Buffett has always said that it should not matter if the market closes down for a decade, the investor should be happy to sit on his hands with his current portfolio. People often make the mistake of thinking that they need to make constant buying and selling decisions, but often the best money is made by sitting on your hands and doing nothing. Thinking back to past mistakes I have made, I can recall a few.

Back in 2008 when the markets started falling, I brought some more FMG (Fortescue Mining) shares around $9. They had just been at $13, and I had just read the old investing fable that a smart investor should buy when others are selling. I took this quote a little too literally, and did not realize at the time that the selling had only just started! Believe me, when FMG hit its bottom at around $2, I was feeling very stupid indeed. Clearly it is sometimes better not to try and time the market. Don't take any old investing fable too literally, because you will likely end up buying or selling at exactly when you shouldn't.

In 2011 I had rode the gold price higher with Newcrest Mining early in the year and got out at a good price. Around the mid-year I decided that it was a good time to get back into Newcrest and made a statement buy. Jim Cramer always says that you should never make statement buys, because by doing so you are essentially trying to time the market. I quickly learnt this, as at exactly the same time as I brought Newcrest, gold topped out at around $1800 and then quickly fell to $1300. As a result, I lost a lot of money. I guess the lessons I can take from this are too always make gradual buys, and don't buy all at once. The other lesson I have remembered from this mistake is to do proper study before any buying or selling decision. In this case, I would have seen that the underlying commodity i.e. gold, had had a huge run up over the previous year, and it was obviously an unwise decision to buy back into the stock.

The other mistake I will comment on refers to the only IPO I have ever brought into. It was the enterprise software company Hubspot. Which, like Elf, I sold far too soon. But unlike Elf, I actually developed some personal contacts within the company. Peter Lynch, in his famous book One up on Wall Street, described this tactic as scuttlebutt. I simply wanted to see if their marketing prowess was everything that they said it was. I came away with the conclusion that it weren't. But in all honestly, after reading an unflattering book on them, I developed a personal dislike of the company. I think I sold them at around $50 in 2015. Today they sit at $636. My personal dislike of the company employees blinded me to their potential. Hubspot are like the little Salesforce. They essentially do the same thing. I have always liked Salesforce, and in retrospect I may have been better to own them. But this lesson here is to not let personal feelings overcome sound analysis. And this goes both ways, on the long and short side. It is a bit like how understanding agricultural businesses, from my farming background, does not mean that agricultural businesses are good investments. They tend in fact to be cyclical and low margin. Companies that can grow their earnings, with high profit margins, often turn out to be better over the long term.