I recently completed this fantastic book called Invest like a Dealmaker by Christopher Mayer. It included the captioned quote from another investing legend which basically means successful investing requires one to avoid making mistakes and make the most of other people’s mistakes, as in amateur Tennis where all you need is to roll the ball over the net to keep going. This is unlike a winner’s game such as professional Tennis where you need to be skilled enough to win on your own.
So today I look back at some of my mistakes, flops and disasters which toughened me enough to keep going.
It was early 2018 and I began to invest in a company called Reliance Home Finance. Yes, ADAG group of all things. I prided myself on having read the Intelligent Investor and had recently learnt to read the Balance Sheet. My first investment was made at 107 and when I finally got out in March 2020, it traded at the princely sum of 95 paisa! I lost 99.99% of my money and a total loss of over 1l. So what went wrong?
First of all, I bought junk which turned into shit. I didn’t care to see that the group had begun to default on its other debt obligations and claimed foul that it had nothing to do with its own shortfalls. Funnily, I kept hinged on its book value which was over 50rs at the time of my purchase. One lesson I learnt was that a lender’s book value can vanish overnight when debt came calling and it had nothing to pay. This did happen and once its asset value went south, book value meant nothing!
Secondly, I learnt to never buy junk! In a world where you can choose from 5000 stocks, why waste your time praying for a bad group to turn out sober.
Another huge flop for me was Yes Bank. I lost almost 99% of the invested capital for similar reasons as mentioned above. I remember the sigh of relief when I could exit at around 8Rs in March 2020 that at least my portfolio was cleaned off all the shit I carried in the name of Value Investing.
Here are my takeaways( https://zerotomillion.business.blog/2021/05/26/dont-buy-junk/) It is of utmost importance to avoid losing money. This does not refer to the notional stock price decline which happens as a matter of fact. Loss/ Risk is defined as the possibility of permanent loss of invested capital. So once you learn the art of saying no https://zerotomillion.business.blog/2021/06/12/art-of-saying-no/, you narrow your list to such stocks which have at least more than a fair chance to survive and thrive over a three five year period.
I also made a thumb rule to avoid lenders. This goes against the investing wisdom prevalent in India where Banks form almost one third of the key indices and HDFC Bank and Kotak are touted as the cornerstone of a sound portfolio. Well, why I differ is that I hate businesses where you call a sale as money going out of the door. This is exactly what happens in lending businesses. You borrow short term deposits, and lend long term, praying for money to come back on time,if at all. What I love are the non lending financials. They are the cash generating machines. You can’t trade without putting in the full amount needed with your broker and win or lose, he makes money. The MF guy takes his cut before he invests on your behalf. BSE gets the cut irrespective of the market moving up or down, every day of the year when the market is open! I simply love them!
The fact that I could learn to buy them and didn’t fall for a PNB which my broker almost begged of me to buy at 60, and again at 40( now still trades thereabouts) or a Jet Airways is because I booked that loss of over 2l which by the way still shows in my ITR. I learnt to book a loss as it cleans up your portfolio and also is tax efficient. Your loss can be carried forward up to 7 years and is set off against equal gains made subsequently. Also, booking loss is painful. So next time you’re very careful to avoid such traps.
I also have learnt to give up on the idea of beating the market. Every great Investor who has survived the game for over 10 years tells you that he has lagged the market for multiple years in a row but one or two great years eventually make up for everything. Also, concentration is essential. You can’t win big by betting 1-2% on your best idea. Unless you back up the truck on your best idea and see it grows to almost 50% of your portfolio or even more, it won’t make a difference to your networth( https://zerotomillion.business.blog/2021/06/07/growing-your-capital/)
PS: one stock which I followed quite closely, bought and then got out is Care ratings. It ticks all the boxes, Guy Spier owns it, Crisil bought 9% at 1600, business is strong. However, I just couldn’t add to my portfolio as whenever it fell further, something like an ICICI SECURITIES also fell. Everybody except Buffet runs out of cash buying the dip. So I thought it was wiser to add to an already substantial position of an ISEC or TaMo rather than trying to create a new position in Care. This is a lesson on capital allocation one must learn- you only have so much money. Spend it wisely!
Life is all about Compounding! 