“Mea culpa.” It’s literally translated as “through my fault,” and it’s basically used to express an admission of guilt — my fault, my mistake.
Unsurprisingly, the mea culpa doesn’t come along that often in the stock picking world. Stock pickers love to talk about when they’re right, but much like you see in sports punditry (here’s looking at you, Mark May), when they get it wrong … you never hear about it again.
No one gets it right all the time in the stock picking game, though, not even the best. Warren Buffett, Peter Lynch and a score of others would make an investing hall of fame if such a thing existed … but no one would be enshrined with a perfect record.
The thing is, some of the best (albeit most painful) investing lessons can be learned from the biggest mistakes. After all, if you get burned, you’re probably going to do your best to figure out how to prevent getting burned again, right?
To keep ourselves honest, some of InvestorPlace’s regular contributors have written about some of their worst picks of the year — what they got wrong, what happened, and in most cases, what can be learned from their mistakes.
I’m a long-term value kind of guy. Momentum stocks, turnaround plays, IPOs … they don’t do it for me. Investing successfully for decades to come is hard enough. Racking up fees and commissions while trading whatever’s hot at the moment is too much like playing against the house.
As we all know, the house always wins.
Unfortunately, that also means I miss a lot of great shorter-term opportunities, and I did so big-time with BlackBerry Ltd. (BBRY) earlier this year. Back in March, BlackBerry showed some signs of life when it posted a narrower-than-expected loss. But sales fell below $1 billion for the first time since 2007 and I remained deeply skeptical of its turnaround plan.
When I told investors to stay away from BBRY after that earnings report, I looked pretty smart — for about a month. Then shares came roaring back. True, it’s been a remarkably volatile ride since I kicked BlackBerry to the curb, but BBRY was indeed a buy.
BBRY is up 19% since my call, staying in the green the entire time. The S&P 500, meanwhile, is up less than 9% over the same span. In a worst-case scenario (from my point of view), a lucky trader could have made as much as 43% on BBRY by buying when I made my call and then selling at BBRY’s 2014 peak.
For the record: I’m still not bullish on BBRY. That’s like being bullish on a Hail Mary, which is what BlackBerry is now throwing up with its launch of the BlackBerry Classic smartphone.
But, hey, I’ve been wrong before.
2014 has been a rough year to navigate. I went against the grain in January and bet big on one macro trend — that long-term interest rates would fall in 2014 rather than rise — and invested heavily in equity REITs and mortgage REITs. That bet paid off handsomely, and my conservative, income-oriented portfolios have had a great year.
But where do I even start on all of the investing mistakes I made this year …
In my more aggressive portfolios, I made large allocations to emerging markets … just in time to see most emerging markets have the worst January in years. My pick in this year’s InvestorPlace Best Stocks contest — South African telecom giant MTN Group Ltd (ADR) (MTNOY) — was a play on the emerging-market theme, and it has landed me squarely in last place.
I invested in Russian stocks during the Crimea and Ukraine crises believing that Western sanctions would be mostly toothless and that Russian stocks were too cheap to ignore. Well, that theory sounded great … right up until the price of crude oil collapsed, sending Russian stocks into a tailspin.
Oh, and while I’m at it, I didn’t see the crude oil collapse coming. My income-oriented portfolios had a large allocation in MLP general partners, and the collapse in MLP prices eroded most of my outperformance from earlier in the year.
I also recommended Prospect Capital Corporation (PSEC), noting that I believed a dividend cut was unlikely given the strong insider buying patterns I saw. Six weeks later, it cut its dividend.
But my biggest mea culpa of 2014 was getting into Brazilian stocks at precisely the wrong time. The iShares MSCI Brazil ETF (EWZ) rallied 42% going into September of this year. Even after that move, I believed Brazilian stocks to be cheap and underowned. With a new, market-friendly president taking office, I believed Brazil was primed for several years of solid returns.
There was just one problem. The new market-friendly president lost the election. Dilma was reelected and Brazilian stocks gave up all of their gains for the year. EWZ is now scraping along at close to its lows for the year.
What lessons can we learn from all of this?
No matter how sound your investment thesis looks, there can always be “externalities” that come out of left field. This year, we had plenty of them — the Russian annexation of Crimea, the Argentine debt default, the Ebola outbreak and the crude oil collapse, to name a few — but there will always be something.
When this happens, don’t look for someone or something to blame. Instead, try to keep a level head and approach each trading day as a clean slate. Look at your portfolio objectively and ask the following question: If I didn’t already own the stocks I have in my portfolio today, would I buy them now, knowing what I know?
If you can’t credibly say yes, then you need to consider selling or at least tightening your stops.
It’s not easy to maintain that kind of detachment. I struggle with it constantly, and if I am to be honest, I don’t consider myself particularly good at it. But it’s a trait I notice consistently among great investors.
“I got Tesla right, sure. But I didn’t get everything right this year.
Back in spring, when Russian equities were being dumped, I bought Yandex NV (YNDX), the leading Russian search engine that also operates in the Ukraine, Turkey and a few other countries. “What a bargain,” thought I, with Yandex nearly halved from its all-time highs. Russian stocks were being obliterated thanks to Vladimir Putin’s warmongering, but that wasn’t going to last forever.
Funny, that. It turns out that swelling up to Ukraine isn’t the only way to tank your stock market. As oil prices crumbled in the final few months of the year, so did any market confidence in oil-dependent Russia, whose ruble is plunging so bad that the country’s prostitutes have had to hike rates.
Sure, plenty of people didn’t see all this coming, but I really wet the bed.
Like a degenerate gambler that’s convinced he’ll finally rebound with just one more hand, I stayed in the game the whole time anyway, riding YNDX to some 30% losses with no stop-losses to catch me along the way.
The best lesson to learn here isn’t that you shouldn’t go speculating in individual international stocks — you absolutely should, because there are plenty of big gains to be made along the way. But if you do, you’d better bone up on the area you’re targeting, keep your eyes on the news wire and be mentally prepared to accept smaller losses rather than let them compound into a major haircut.
After all, you can always buy back in.
I was convinced that Apple Inc. (AAPL) was going to replace the Apple TV streamer with a more powerful model in 2014, probably one that would play video games.
With two-year old hardware and competition from the new Amazon.com, Inc. (AMZN) Fire TV threatening its billion dollar business, I was pretty sure Tim Cook would slip a new Apple TV into the October iPad event. Didn’t happen.
When Google Inc (GOOG) introduced its Nexus Player — another direct Apple TV competitor with superior capabilities — I once again called on Apple to release an update already. It has the technology, the games and the business worth protecting to act. And the holiday shopping season was fast approaching.
Now we have proof that Apple TV is rapidly losing market share to the newcomers. All those years of building up from hobby to a legitimate line of business — one that generates more revenue on its own than many high profile tech companies and gained its own tab on the Apple Store website this year — are at risk of being thrown away.
I don’t know if Apple is too busy working on the Apple Watch, if it’s stuck in negotiations with content providers or if it simply doesn’t care about the living room.
Whatever the reason, I was definitely wrong that we’d be seeing a fourth-generation Apple TV this year.
Initial public offerings can be a great way to produce substantial gains. This year alone, we saw doubles or more from the IPOs of companies including Zendesk Inc (ZEN), GoPro Inc (GRPO) and TrueCar Inc (TRUE).
Of course, IPOs can sustain heavy losses, too. Just look at Vivint Solar Inc (VSLR), which has hemorrhaged roughly 50% since coming public in early October.
While I’ve urged caution, I’ve been bullish on Vivint’s long-term prospects for some time. I wrote bullish posts on VSLR in October and November. I noted that the core business was appealing — VSLR installs solar panels for no upfront money, instead opting to ink customers to 20-year contracts, locking in longer-term revenue while providing customers with discounts of 15% to 30% against typical utility rates.
The big attraction to me is the long-term growth potential. GRM Research believes this market will grow at a sizzling 37% annually through 2018.
I noted in October that investors could wait for better prices, and even hedged a bit in my November post, saying, “Now this doesn’t mean you should buy VSLR stock today. Whenever there is a huge drop like we saw on Tuesday, there is often further deterioration. But after the dust settles, the company will still remain a great way to play the huge potential growth in residential solar.”
Nonetheless, Vivint hasn’t been able to show any positivity in the short term, and prices continued to fall for weeks after my latter post.
Downward momentum can be brutal and long-lasting, and many who bought in on the downswing found themselves staring at even more losses afterward.