Sunday, 30 September 2007

A brief history 4 – Mistakes and Lessons learned

As mentioned, I did not become a guru after gaining some financial knowledge.  I still make mistakes and in the process of becoming a better investor.  These are some of the biggest mistakes and best moves I made from late 2003 to 2005.

1) Selling of CAO at a price of $1.28 and $1.87 in Feb/Mar 2004.  The price has rocketed without reason.  The fundamental remained the same.  At $1.28, I sold it to lock in some gains.  At $1.87, it has tripled to my purchase price and the PE was more than 20 x (I can’t remember the actual figure) which I feel that it will not be able to sustain.  Even though the price went to $2.7 later, I remembered I did not feel bad at all because the market is reacting irrationally.  I am glad that I have sold this stock before it crashed due to their trading loss.

Lesson learned: When the price shoots up too far from its fundamental without any news, release it.

2) Making a loss of $300 on Integra2000 in Mar 2004.  It’s a small loss but an important lesson.  I’ve speculated that the company will report good results and hence give me a good return.  How wrong I was.

Lesson learned: Do homework before investing.

3) Making a loss of $1200 on AGVA in Sep 2004.  I was influenced by other analysis of the stocks and did not look into the business mold.  Also, I bought because I am familiar with the brand.  The company was affected by an increase in raw material price and could not pass the cost to its customers as their products do not sell at a premium.

Lesson learned: Familiar brand does not mean a thing.  Do no rely on others’ analysis.

4) Making a total loss of $3000 on UFood by Dec 2004.  I was influenced by Wallstraits analysis of the company.  The company has indeed done well from 2000 to 2003 and has been shareholders’ friendly with their generous dividend.  Due to an increase in pig price, the company suffers and both top-lines and bottom lines went south.  Management has not been forthcoming and the sale of shares my insiders sent the sentiment of the down.  As the fundamental did not improve, I still hold on to the shares, hoping for it to turn around.  I finally decided to let it go as I have no confidence in the management based on their actions and their inability to keep their promise on setting up a webpage.  Currently, I still think the share is cheap but opportunity cost and the lack of transparency of the management makes me decides to invest in PFood instead.

Lesson learned: When fundamental of company is not doing well, look hard into the cause and divest the shares instead of hoping for turn-around if there are no such signs.

5) Selling Celestial NF at a loss of $400 in Dec 2004.  The company has big expansion plan but market did not react positively to it and with CAO scandal, Chinese companies were not doing well.  I am impressed by their expansion plan and know that if their expansion plan goes well, their earning will grow.  However, I made an emotional decision to cut loss instead of hanging on to the shares.  My 5000 units would have given me a gain of $5000 by last week price.  I have let this four-bagger goes too early.

Lesson learned: Believe in your own analysis!6) Selling TPV and locking in gain of $1150 in Aug 2005.  I read up a report on TPV and after going through their annual reports, was impressed by their progress over the years.  The only worry that kept me back was their low profit margin.  Their prices move in Aug 2005 and at $1.12, the company was still valued pretty cheaply.  However, I let the fear of the margin overcomes me and decided to sell it.  With my confidence of the LCD market moving forwards and also how the company has progressed over the years, I should have hold to my shares and I would have another $4000 unrealized profit based on the recent prices.

Lesson learned: If valuation is reasonable with sustainable high growth rate, don’t rush into selling.

7) Making a loss of $1800 with SMT by Feb’ 06.  SMT has always been an undervalued stock.  Till now, the only reason I can come out with that SMT is undervalued because of its high debt.   I have held on this stock for more than 2 years and its price has been dropping with flat profit over the 2 years.  I decided to let it go because of pretty flat performance and it is a low profit margin.  This is not a company which I feel grow into a major player and I bought it simply because of its low valuation.  Is my decision correct?  Only time will tell.

Lesson learned: Valuation is not everything.

No comments:

Post a Comment