My 7 Worst Value Investing Mistakes in Over 21 Years

I began over 21 years ago.

And during these years, I’ve made all kinds of investing mistakes.

Here are seven of the worst:

1. Strategies

AKA

“What type of stocks to buy?”

Mistake

I fell in love with what Peter Lynch, Warren Buffett and Ben Graham have said.

But, I stopped with them. Didn’t look any further.

And that was a mistake.

Because, I missed out on many useful tips from other investors.

Result

  • I had no idea about market cycles.

Example: In 2013, I bought SAIL. But used a buy-and-hold strategy. Which was totally the wrong strategy for the stock.1To be clear, Peter Lynch does cover cyclical stocks in One Up On Wall Street, the book I’d read. I guess, I didn’t study it diligently.

Reading Howard Marks, or listening to Sankaran Naren would’ve helped.2Sankaran Naren’s interview with Edelweiss Wealth Management: A Contrarion’s Checklist

  • I had no idea when to average down, and when not to.

Example: In 2012, I bought and averaged down BHEL, thinking it’s a great stock, merely going through some temporary trouble. Didn’t realize it was in a structural decline.

Reading someone like John Hempton would’ve helped.3Although, he wrote When Do You Average Down, 5 years after my unfortunate buy-decision.

Steps

Follow modern value investors too. Read their books, articles, and letters. And listen to their interviews and talks.4Three excellent resources are: Ben Graham Centre for Value Investing at Ivey Business School, Investors at Google Talks, and CFA Society India.

Build your arsenal of value investing strategies.

2. Search

AKA

“Where to find those stocks?”

Mistake

I always began my search with high-quality companies. And never with low price.

Result

I kept hitting dead ends.

Because, between 2010-2020, my favorite high-quality stocks rarely fell below my price trigger.

Steps

As a small investor, you should try to find stocks, which are cheap. And then, check for adequate (not stellar) quality.

Not the other way.

The rare occasion to begin with high quality, is when there’s a market dislocation (fancy words for stock market crash).

3. Edge

AKA

“Why you?”

Mistakes

  • 1. Didn’t start investing earlier, with meaningful sums. Was a paper tiger.
  • 2. Many sectors are blind spots: IT, banking, pharma, chemicals, etc. Didn’t sort them out.

Result

  • 1. I never really found out what I was good at, and bad at.
  • 2. Never could touch stocks from the blind spots.

Steps

  • 1. Have skin in the game. Invest actual money. You’ll learn even more about yourself, than about your stocks.
  • 2. Also, spend a few days on each blind spot sector. Read up on it. Take notes.

4. Catalysts

AKA

“When to buy?”

Mistake

Did not specifically pay attention to catalysts.

Result

I could not predict the twists in the tale of many stocks.

Steps

  • 1. Listen to a lot of earnings calls.
  • 2. Track the supply side of asset heavy sectors like metals, energy, banks, etc.
  • 3. Track latest corporate events.
  • 4. Do a deep-dive on companies in crisis.
  • 5. Study user feedback for consumer facing companies.

5. Valuation

AKA

“When you buy?”

Mistake

Did too much spreadsheets.

Steps

Focus on adequate value. Not on exact valuation.

6. Asset allocation

AKA

“How much to buy?”

Mistake

I did not know how important cycles are. And did not pay sufficient attention to them.

Result

I missed many stocks from sectors which experienced upswings.

Steps

Pay attention when several stocks from 1 particular sector are going through pain.

Forget gold

  • Gold just sits there. Business produces cash flow. Choose business.5 1. Fortune magazine, 2010, Oct, 19, Warren Buffett: Forget gold, buy stocks | 2. Launch of Berkshire insurance in India, 2011, YouTube video, 10:48
Asset classProducesA bet onPreference
GoldNothingPrice of the assetNo
BusinessCash flowProductivity of the assetYes

7. Position sizing

AKA

“How much to buy?”


  • Disclosure: A few of the stocks mentioned above, might be a part of my portfolio. Kindly assume, my views on them, are biased.
  • Disclaimer: This blog post is for educational purposes only. It’s not a research recommendation, or investment advice. Kindly read the full disclaimer.

References

1To be clear, Peter Lynch does cover cyclical stocks in One Up On Wall Street, the book I’d read. I guess, I didn’t study it diligently.
2Sankaran Naren’s interview with Edelweiss Wealth Management: A Contrarion’s Checklist
3Although, he wrote When Do You Average Down, 5 years after my unfortunate buy-decision.
4Three excellent resources are: Ben Graham Centre for Value Investing at Ivey Business School, Investors at Google Talks, and CFA Society India.
5 1. Fortune magazine, 2010, Oct, 19, Warren Buffett: Forget gold, buy stocks | 2. Launch of Berkshire insurance in India, 2011, YouTube video, 10:48
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