They say hindsight is 20/20, and if this is true at all it is certainly true when it comes to the past performance of your investments. Looking back on how well your stocks or funds have done, you can pick the dogs out with perfect clarity. Here are a few of my own. I’m amazed at the degree of confidence I had in the market and the risk I was willing to take on with some of these. Luckily, I didn’t put a lot of money on the table, and I’ve also learned some great lessons, which I’ll share with you.
Worst-Performing Stocks of My 2008 Portfolio, Or, I Will Never Make These Five Mistakes Again
First, let me get a few points clear. These stocks were not casualties of the U.S.-driven global credit crisis. These were already bad investment choices prior to September 2008. And yet, all this means is that they were bad investment choices for me. By no means am I saying these are bad companies or that they have made management mistakes. My analysis does not and did not run that deep (so it is still possible one or more of these may in fact have made a management mistake I’m not aware of).
Second point: this list is not about “what I learned as a result of the 2008-2009 market crash.” That’s another post. These were most definitely already mistakes in August 2008, when the markets were still fairly buoyant.
Third point: Do your own research and make your own decisions. As already indicated, I do not mean to speak negatively on these as companies. Stocks never trade exactly in lockstep with what the underlying company is actually doing (stocks are subject to other market and investing forces as well). Thus, my point here is not to say that *you should not buy these stocks* or that *these companies are bad.* I only mention the company names, actually, to have some degree of specificity and an example to show you with what *I did.*
OK, so with that out of the way, here they are in no particular order.
Must Demonstrate Profits
Will the stock feed you if the sky falls in? Does it have any goods at all? Hinterland Metals (TSX: HMI). I bought this when I got caught up in the resources boom in early 2008. It’s hard to see “being caught up in” a bubble when the bubble is happening, because theoretically you want all markets to grow, so it just seems as though it’s what is supposed to happen. I got excited by their potential potash finds in eastern Canada and since the stock was cheap thought it was a good bet. I knew I was making a somewhat “speculative” play, but I felt I could afford it. And indeed, I didn’t put a lot on it. But as the credit crisis hit and the possibility of something worse than a recession came to seem like a possible reality, I found myself wishing that I had just put my hard-earned money in something boring that would just pay dividends. Also, the potential potash finds on this stock (my only reason for buying) would only have made up a small portion of their portfolio and thus of total stock’s value. So I didn’t factor in other risks the company was open to. Mistake on a scale of 1 to 10: 9.5 (it’s hard to imagine making a greater stock picking mistake, but I’ll leave a bit of room for the possibility).
Use Media For Research Only
Don’t allow yourself to buy a stock that you’ve only learned about because it or its sector is getting a lot of media attention. If it’s getting that much attention, there’s either some kind of boom or bubble going on, and you don’t want that to drag you in. Spur Ventures (YSX: SVU). This is another potash play that I was going after. I was looking at the cheaper potash stocks because I didn’t want to shell out $200+/share for Potash Corp. (POT). Dumb. Buy quality. Buy proven quality. There’s a reason POT was going for that much. I bought these shares around $1.42 and now they’re trading near 27 cents. A penny stock. And of course, because the company doesn’t have a regular source of profits (they’re in exploration), there are no dividends. Another lesson: if you do want to make a more “speculative” buy (more risk more reward, right?), at least try to make sure that you’ll be seeing a ROI sooner rather than later. Mistake on a scale of 1 to 10: 8.
Buy Quality
Buy the best or second best in a sector. If you can’t afford it, wait, or save up for it. Potash One (TSX: KCL). You can see a theme here with my previous two picks. This company, however, has some solid reserves. But no dividends. I bought at an average cost of $6.55. Now they’re trading near $2.30. Despite the poor performance, however, this stock retains some value because I think it could be a good candidate for a takeover. I don’t ever expect to dividends here, but I’m hanging on for when potash is high in demand again. Unlike gold, which has negligible urgent uses, agriculture around the world depends on potash and this company is positioned close enough to take advantage of it, in my opinion. But it would have been better for me to wait for a pullback and buy one of the bigger players, I think. Mistake on a scale of 1 to 10: 6.5.
Keep An Eye On The Stock
Don’t chase yield, and put a new strategy in place if the stock stops performing the way you were expecting. Also, don’t buy a stock just because it has a DRIP plan. Enervest Diversified Income Trust (EIT.UN) – I bought this many years ago, because it was the only DRIP I knew in Canada that had such a high yield and, at the time, no minimum investment required. But this stock changed on me. They added a minimum investment amount; they required a money order for payments (costing $10 each time), and then after their stock fell in the credit crash, they bought back shares, effectively reducing any dividend gains I had made for the last 2 or more years (since the distributions came in the form of units). There’s another lesson on this stock, too: full DRIP reinvestment works best when the company is on a path of growth and dividend growth especially. DRIPs aren’t meant for strange vehicles like closed-end funds. All this said, though, I’m holding on to the stock and have elected to take the distributions in cash at this point. I can recycle them for use in another strategy. Mistake on a scale of 1 to 10: 5 (because it’s been a great learning stock, and I think I can still get some value out of it).
Yields Supported By Real Growth
Don’t chase yield (again). Buy companies that have good growth prospects. Yellow Pages Income Fund (YLO.UN). When I bought this, it was yielding around 10% or slightly more. It was cheap and I thought a great way to bring in monthly income. It was, and is. But the credit crisis killed its value and there doesn’t seem to be any oomph left in the stock – that is, there doesn’t seem to be much market sentiment for its business model anymore. I have carefully examined the yellow pages extinction argument, and while I concede points on both sides, the fact is that if everyone else thinks there’s no hope left for it, no one will buy it and the price goes down. Eventually the company might cut its distribution, too. When the income trusts (some of them) convert to corporations in 2011, this seems a likely candidate for a severe distribution cut. So I’m holding on until I make my money back, then will use any distributions in some different strategy. Mistake on a scale of 1 to 10: 5.
I’m holding onto all of these, partly because I’m mostly a buy-and-holder anyway, but partly because it would just be too expensive to sell them at this point, especially when the commission might be larger than the cash it would give me back in some of these cases. But I also expect three of them to make back some of their losses, too.
What about you? I’d love to hear your stock mistake stories. Although it’s easy to make stock picking mistakes, even when you’re careful, they’re easy to learn from and I do think it’s possible to improve. I’m not trying to beat “the market” in any of my stock endeavors, nor do I think one needs to – it’s enough just to beat your own cost-of-living-index.
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{ 5 comments… read them below or add one }
I recently purchase 300 units of Yellow Pages Income Fund (YLO.UN). I now have a total of 401 units. I purchased YLO.UN for its dividend. I understand your concern regarding YLO.UN. But at an annual dividend of 80 cents per unit, and at the price of the investment (around 5$ per unit), YLO.UN is cheap and is a good investment. Once the economy will be better, YLO.UN will gain in value. It’s a good company from my point of view, but I wouldn’t invest only in YLO.UN. I don’t know the other companies you are talking about in your post but find everything interesting.
Hi Sunny, thanks for your comment. YLO is definitely cheap right now, and some analysts think it’s because advertising is in a secular decline due to the economy. I know it’s still a decent stock, but I don’t want to put more money on it at this point. In retrospect, it would have been nice if I’d been able to wait for the pullback, then buy even more of it, and just hold on. Another analyst I’ve heard recently still thinks it’s a solid company, too, despite the state of the print advertising industry.
Great read. I’m actually invested in YLO.UN at the moment, I was wondering if any of you know if they have a DRIP or if I can do something like DSP?
Thanks
hi Jason, no, YLO.UN does not have a DRIP (or DSP – it’s the same thing). You could always “do it yourself”, though, by reinvesting the distributions yourself.
Thanks, I was just looking for a way to avoid broker fees.