In last
week article about Warren Buffett, I expressed at least three reasons why
I, personally, make him as a role model. They are: 1. I don’t have enough time
to read more about any other great investors, 2. Not only teaching about stock
investing, Buffett also teaches how to be ‘a good man’, for example he does not
take advantage from the loss of others. 3. Buffett is one of few investors who
is always happy and relaxed in doing his job at Berkshire, and that makes him a
pleasant person.
However, there is
still another reason why Buffett is very unique compared with many other investors,
that he deserved to be a role model. Unlike most other investors who just tell
their big success in making huge profits from stock markets (expecting people
call them great investors or kind of), Buffett told a lot about his mistakes, which we can then learn a lot from them. One ‘mistake’
that he told repeatedly is his decision to acquire Berkshire Hathaway in 1962,
which the Berkshire’s textile business still cannot make any profits even
though the management team had already work hard several years after.
But, Buffett’s
mistake was more than that. Yup, even Berkshire kept losing money, Buffett
still insisted to keep company’s textile factory assets that lowered the whole
performance of his investment portfolio. Buffett was finally given up and decided
to sell the Berkshire’s last textile factory in 1986, after more than 20 years
since he bought Berkshire’s shares. In many his later writings, Buffett
complained heavily that if he had immediately get out from Berkshire, then used
the money and the next 20 years of time to fully focused in other profitable
investments, he should be much richer than he is now.
 |
| This company is actually one of Buffett's biggest mistakes |
So the lesson here
is, if you realize that you bought the wrong stock in the first place, do not hesitate:
Immediately sell the stock, even in a loss position.
But illustrious sir,
what if the loss is already too much? If the stock is sold, does not it mean
that we just realize these big losses? Well, related to this, just some time
ago, I received an email with the content as follows, call it Mr. A:
‘Mr. Teguh, I have
invested in stock market since March 2013 (almost 5 years, quite long enough),
but every year I kept losing money. In mid-2017, I read your book titled ‘Value
Investing: Beat the Market in Five Minutes!’ and start buying stocks based on
your strategy in the book. And it turns out that the results have been very
good although overall is still negative, because there are some of my stocks that
still in loss position such Wijaya Karya Beton (WTON) and Pembangunan Perumahan
(PTPP). Please your advice Sir.’
Note: In his
portfolio, Mr. A holds eleven different stocks which, except WTON and PTPP which
were purchased in 2015 and 2016, nine other stocks were just purchased in the
third and fourth quarter of 2017. Interestingly, of the nine shares, which is
certainly purchased based on value investing method, seven of which generate
significant profits up to hundreds of percent (INDY), while
the other two are down but only by 1 – 2%. However, since the position of WTON
and PTPP is minus 46% and 36% respectively, while more than 50% of the
portfolio value is still locked in those two stocks, the overall portfolio
performance is minus about 4%.
So, my response is:
‘Your portfolio is
already good. Most of the stocks that you own, including the purchase prices
are also according to value investing principle. It’s just that you have to
learn to ‘accept mistakes in the past’ and ‘move on’, by selling WTON and PTPP,
because these two stocks were not purchased based on value investing rules,
aren’t they? Yes, that means you will suffer meaningful loss, but you have to
consider how much profit that can be generated in the future if the money is
invested back to the right stocks, rather than keep it idle in these two stocks
without any certainty of when the loss will turn as gain.’
Well! What Mr. A
experienced above is probably a common case for retail investors, whether he is
a novice or experienced. Now be frank: Take a look at your portfolio, are there
still one or two potentially loss shares that you used to buy at random and
without analysis/just follow some recommendations that are not even clear where
it came from? How many years have you kept the stock? And could you imagine how
much profit you should make if you immediately sell the stock, and used the
money to buy other better stocks??
This is why if there
are investors who ask advice to me related to his/her portfolio, and it turns
out the portfolio consists of junk stocks (or the stock that is actually good,
but the purchase price is wrong/overpriced), and the investor also admitted
that he/she bought those stocks without strategy and analysis at all, then my
suggestion is: Sell all the shares, either it is in profit or loss position,
then start all over again from the beginning. But Sir, that means I will take
the loss? Yes, that’s right. But first, consider it as the cost of learning
from experience. Because not only you, I myself (and also Warren Buffett, as
well as many other big investors) have also been forced to sell stocks in a big
loss position. But precisely because we dare to accept the fact that we chose
the wrong stock, then move on, then
the result is now fairly good. Yup, because the ‘experience’ is the most
valuable teacher, and at the same time the most expensive, much more expensive
than if you buy a book, join seminars, etc, but on the other hand the result of
the ‘lesson’ is the best and you will never forget for lifetime. You can read
the full
story here.
Then secondly, as
mentioned above, try to look forward, just think about how much profit can be
generated in the future if we sell unproductive stock then reinvested the money
to the right shares, rather than that money left locked in those unproductive
stocks without any certainty of turnover. Yup, so when you continue to hold
shares whose positions loss for years, then at first glance you did not lose
anything (because the shares have not been sold, so you did not take the loss
yet), but in fact you have already lost twice: 1. The stock price may fall further,
especially ifthe stock is not worth investing in the first place, and 2. You
lose the profit opportunities in other stocks.
Anyway, as it’s
still early in the year, so if there is one or two stocks in losing position in
your portfolio, and you know very well that the losses have no certainty about
when it will turn positive, then it’s time to move on! And if after reading
this you immediately decide to move on, then that means you (in this case) are
even better than Warren Buffett, which takes up to 20 years to realize the
Berkshire textile factory would not make any profit. What? You still not dare
to sell quit all the position because the loss is too big? Alright then, you
can sell half of it first. So if you hold 100 shares of the stocks, you can
sell 50 shares first, then use the money to buy another better stock, and see
the results later.
Original article was written and published in
Bahasa Indonesia in January 9, 2018. Any inquiries, send email to teguh.idx@gmail.com
No comments:
Post a Comment