Earlier in my investing life, I learnt things the hard way by losing my hard earned money when I could easily have saved myself from the same had I learnt about value investing earlier. For the benefit of the readers I want to show you how I got swept with my emotions during the time and what it taught me.
Mistake 1: Investment in Teledata Informatics
This is in 2006 when I get to know about this hot stock from my broker. The stock had already had a great run in the past few months and like many foolish investors I got in right at the top. As far as I can remember, the price was close to Rs. 65 at the time. From then on, it was a mental torture to sit trough the fall. Later the company spun of two entities from itself and the stock fell further. I went to Australia for further studies in 2007 and was not trading in stocks for the next two years. In the end I sold the stock along with shares of two spun off entities at a combined value of Rs. 7 per share. By 2014 all three stock went off trading.
Learnings (not immediately after the loss but much later): Be at distance from so called hot stocks. Analyse the company’s fundamentals and the price you need to pay for the same. Only then can one take an informed decision.
Mistake 2: Investment in Geodesic Limited
This is in 2009 when I was back from Australia and was investing in stocks after a gap of 2 years (still novice in terms of how to invest). I had not even recovered from the loss of Teledata Informatics that I jumped into another hot stock- Geodesic Limited at a price of around Rs. 120. Over the next two years I traded in and out of the stock every time trying to recover my previous losses. I was adamant that my judgement was right and the market was teaching me a lesson. At last I had lost so much in the stock that I stopped investing in stocks. It was too much to take. During this time, there were a lot of signs that the company was in bad shape- FCCB default, promoters not being transparent in sharing information, salary issues etc. The stock had already fallen to Rs. 80 and was just lying in my portfolio. I was not ready to cut losses. Over the next two years the stock plummeted to Rs. 11. That is when I decided to cut losses and all the pain I was going through. Post this the stock fell further to Rs. 4.50 and is not trading now. Promoters are currently being tried in court for siphoning off money outside of India.
Learnings (again, not immediately after the loss but much later when I studied about value investing): Know when to cut losses. I should have cut losses earlier when signs begun to emerge that suggested that the promoters are not transparent enough. I ignored this potent red flag and paid the price. Also learnt that one needs to look at a company’s business model with a magnifying lens- scalability of the business model, clients they are servicing, presence of any durable competitive advantage, annual reports of the last at least 5 years etc. There is no easy way out!