“How much – in percentage terms – has been your biggest ever booked loss in a stock? And which stock was that?”
I asked this on Safal Niveshak’s Facebook and Twitter walls yesterday. And before I could realize, the walls was full with people confessing how they have earned 50-100% losses on their stocks.
While some have booked these losses, there are a few who are hopeful to get their money back. 🙂
Anyways, my friend Vidyanshu suggested that it might be a great exercise to get the learnings of a lot more people from their investment failures, which has resulted in me writing this post.
So here’s your chance to pour your heart out and confess to the tribe about that ‘one’ stock that has caused you the biggest grief in the past, and how did you get over that.
How to confess?
If you are willing, answer these five simple questions in the Comments sections below…
- Which stock has earned you the maximum loss ever?
- How much was that loss, in percentage terms?
- In hindsight, was it due to your mistake in picking up a bad business or did things go wrong with the company later that you had not assumed earlier?
- What was one lesson you learned from that loss/mistake?
- Have you booked the loss? If not, what are you waiting for?
Like here is how I answer these questions…
- Arvind Ltd.
- It was a big mistake on my part in picking up a business that was capital intensive and had zero pricing power. I just went by the company’s strong brands, but did not realize that they were not profitable. I had known how Warren Buffett hated the textile business for its poor economics (like airlines), but thought that “this time it was different”.
- Avoid businesses that don’t have pricing power and are highly capital intensive.
- Yes, I have booked my loss.
Why you must confess?
Contemplating death, as philosophers encourage, is a powerful tool to re-appreciate the present and remember what makes your life meaningful to you.
In the same way, when it comes to investing, recognizing your past mistakes, looking thoughtfully at them, and learning from them are great tools in helping you avoid similar mistakes in the present and future.
As Charlie Munger says, “All I want to know is where I’m going to die so I’ll never go there.”
So let the tribe know about that one stock that almost killed your portfolio, so that others don’t go there…or at least be very careful of going there.
Please don’t feel embarrassed or hesitant to confess, for there will always be someone else who went through a bigger grief than you…and this is your chance to learn vicariously from that.
So shoot your answers in the Comments section below. We are all ears.
1. PTC India Financials (IPO) (still holding)
2. approx 40% of portfolio
3. Got carried away with the hype, ratings and the stock being a PSU
4. Have learnt to wait and watch when there is too much noise, ratings are given a skip.
Hardik Kalaria says
1. Tata Steel.
3. Got carried away by low valuation and good corporate governance.
4. Avoid capital intensive businesses with poor pricing power.
5. Sold most of it at 385. Loss of 35% on few shares.
Hardik Kalaria says
Nice you took my suggestion and initiated this. 🙂
1. Pentamedia Graphics
2. 99%(bought at 1700 and sold at Rs. 16) 🙂
3. Picked up a bad stock
4. Management integrity should be first before investing.
5. Sold all
Bought at 125 and sold at 25
Bought at 125 and Sold at 30
Got carried away by all the Positive Market News
1. Nucleus software
3. I did not understand the business at all. First read a research report (and it was a Paid research report). Never really understood the business or financials and failed to do my own independent research. So true – A fool and his money are soon parted 🙂
4. Sold all (after holding it for one year) when I realized that I still don’t understand the business.
1. Mangalam Cement
3. The same research report – finds this fool (me) and helps me part with my money :). Did not know that cement is a cyclical industry and had no clue about valuation of the business. Second mistake was that I held the stock even after realizing my mistake (sunk cost fallacy).
4. Sold all (after holding it for one year)
Mangalam Cement has a good management and a good market in a few states. The company is good. The problem was your entry price. It will not crash and burn like Opto.
I overlooked how Debt can kill and misread the management.
Debt Kills and All that projected future earning is useless when company is not making any now.
Booked loss at the first chance and avoided buying more to average
1. Fortis hospital
3. Had a very good experience in the hospital and was impressed with their services. Read about Fortis and it’s able and ambitious management (singh brothers) in newspaper and magazines. Read the annual report but was not educated enough to decipher the financials. Learning – If I am not able to understand the business from annual report and financial statement, I will move it to “too-hard” basket.
4. Sold all after one year
1) Ashok Leyland
3) Absolute blind trust in tips from broker. Greed got hold of me.
4) A good company does not necessarily turn into a good investment. Price matters…
1. Shipping corporation of india
3. Only looked at the past record of SCI and without giving any consideration to the macro environment of the shipping industry.
4. careful with PSUs where FPOs are proposed.
5. No, it does not matter even if I sell it, as almost all is lost in the share. It cann’t get worse.
Shiv Kumar says
3.Purchased on the basis of recommendations in a newspaper which had touted it as one of the hottest growing small stocks in 2007 or 2008. I have seen the fundamentals erode day after day, week after week. I am still holding because the original capital was less than 1 per cent of my portfolio and now it is not even worth peanuts.
But considering the time I spent reading its annual reports and analysts reports, etc the loss has been considerable.
Lesson learnt: read up and some more and contain losses to maximum extent possible so that the gains take care of themselves. Since then I really read on Buffett, Peter Lynch, Mohnish Pabrai, Joel Greenblatt’s Magic Formula and Superstocks by Ken Fisher,etc.
5. The result is that I am only looking at quality business available cheap.
1. Reliance Comm
3. Bad business. Purchased in 2008 when all the stocks were going up without thinking about fundamentals and future of the business
4. Never believe any ADAG company.
5. Booked loss.
1. Balrampur Chini
3. My mistake in picking up a business subject to government regulations
4. Be careful with an industry that is subject to whims of govt regulations
5. Holding…It cant get worse.
1. Clariant Chemicals
2. Approx. 35%
3. Thought this was a stable and a long term bet. Didn’t see the oncoming restructuring and reshaping of the portfolio.
4. Try more indepth industry research and speak to people on the ground (after the financial analysis:-))
5. Have not booked loss yet as I haven’t yet convinced myself that this is a bad investment.
1. Engineer India imited
3. Looked at balance sheet , nothing seemd worng.May be never trust on govt what it can do. Still not sure what is causing the drop
4. Still keeping , hope to get some bounce before I come out of it
Regarding your point#3, you still do not know if this was a bad call based on fundamentals or valuation. Your judgment is based on price action which is the working of Mr. Market. Engineers India balance sheet is as strong as it was before. While sales fell because of less turnkey projects, margins improved due to more contribution from consulting projects. Yes, the order book has shrunk but this is not a company that mushroomed last year. It has seen may cycles like these. Keep you patience and you will be rewarded handsomely.
Individual investors and institutions alike are falling for this valuation trap. Their technique of valuation got validation after a sharp rise in 2009. Hence, they have tied their expectations to the excel sheet value. They are considering it as a holy grail. And this is the biggest folly (other than not have any valuation technique at all).
One has to realize that markets do not follow any formula, logic or an excel sheet. We do. Market may or may not choose respect our beliefs.
1. FIRSTOBJECT TECHNOLOGIES
2. ABT 75 %
3. It was a micro cap company in IT sector and had forayed into e-education. The stock appeared cheap initially and the mgmt had received some awards. Very low debt.There were nice analyst reports on the stock. I did realize later on after reading AR that financial reporting is not good and some other negatives but overlooked / ignored this aspect. (inspite of Warren buffet principle of not investing in stocks with weak accounting.)
4. In case of high uncertainity stocks ( micro caps, quality and integrity of mgmt not clear) – either dont invest OR invest a very small amount 1 % to 3 % depending on conviction.
5. YES, booked the loss. I have booked my losses in all my losing stocks except for patel eng.
1) Opto Circuits.(still holding)
2) about 75%
3) still trying to figure out what went wrong– fundamentals look Ok, great economic moat, competent management, financial results OK–only thing I see is they have gone for some acquisitions but they are long-term winners, also R&D expense accounting method changed, I read somewhere, not sure. maybe somebody can explain what is wrong with this stock
4)yet to learn a lesson– in fact I have been buying more as I am convinced this is a fundamentally good scrip operating in a near monopolistic environment.
5) plan to wait for abt 6 months, will sell if still no progress.
Kasthuri Kumaran says
Hi Shreedhar, I agree with your observations about Opto – economic moat, competent management, etc. But have you ever visited their production units and seen their products being manufactured?
Have you done any due diligence other than reading their reports and media coverage? Anything can be manufactured on paper – including stories about acquisitions across borders using millions of shareholder fund and debts..
Opto circuits seems to be a movie with human characters out of Walt Disney studios!
Had you been following SafalNiveshak, loyally, you would have avoided this loss! 🙂
Vk had warned us about its waning FCF, increased payment days and expensive acquisition.
1. IVR PRIME
3. Beginning of my investment journey.. I don’t even remember why I bought it. possibly saw some buy reco.
4. I was shocked to see the number of subsidiaries this co. had when I received the annual report. Learning was not to invest in co. with a lot of subsidiaries. There is no transparency.
5. Yes booked loss. Else I would be 93% down now.. i.e. 75% down from the time I sold. Though it would not make much of a difference as the amount was not big, another learning is that you need not wait for the same stock to recover your money. It might be better to take whatever possible and invest in a better stock.
1. Opto Circuits
3. I picked up business without thorough study – I got carried away by the fact that they’re into cardiac care industry which will grow very fast, and I got biased (purely my mistake despite disclaimers) by StockTalk Vishal wrote 😉 and thought they have very good margin and RoE…and totally ignored all other aspects of checking financials, especially balance sheet
4. Sidecar investments can be dangerous. Before you invest in them, do your own research and try to avoid getting biased by the fact that a better investor than you might be investing in it, especially the fact that Vishal never said he’s buying the stock, but my bias blinded me so much that I assumed he was buying! Chemical locha is very very dangerous, so try to avoid it as much as you can…
5. Sold all in beginning of 2013 at 42% loss
Nitin Sharma says
1) Reliance Power.
3) It was a big mistake on my part in picking up a business that was capital intensive and management that I don’t trust. I just went by the IPO frenzy.
4) Avoid businesses/IPO that are overpriced
5) Yes, I have booked my loss.
Nitin Sharma says
1) Gujarat Gas.
3) There was a sharp drop in price and I could not understand the reason. I booked loss as part of the stop loss strategy and that I don’t understand the reason for the constant fall
4) Have patience when you are investing for value and more importantly have strong conviction
5) Yes, I have booked my loss.
Utkarsh Patel says
1) Muthoot Finance
3)There was drop in price due to the government interference and India’s hawkish stance with the gold
4)Never invest in sectors which can be made government’s scapegoats during tough & volatile times
5) Yes, I have booked my loss
3.Expected Risks are materialized
4.Don’t buy because it is going very cheap, and sell the stocks once expected risks are materialized. don’t touch the stock (business under restructuring mode). and don’t buy more than 5% of portfolio.
5.No. (waiting for fair value)
1. Opto Circuits
3. Underestimated the debt and the impact it would have on the company – especially in the current economic scenario
4. To check the debt levels and what it could cause to company’s balance sheet in difficult times
5. Holding the stock – as I still believe this would be a turnaround story – or could be a potential take over candidate – because they make great products.
Hence, I still believe the business is good, and have not heard anything negative about the management.
1). Vikas Wsp
3). Corporate Governance Issues. Value Trap ? Though a commodity based company with no pricing power, i think there is no overcapacity of Guar Gum manufacturers. Also Guar has natural Moat since 90% of Guar is cultivated in India because of land and weather properties which is not easy to replicate elsewhere in world.
4), 5). Not sold any of the shares yet. May be a psychological denial but I firmly believe business is good, Waiting for few catalyst like LBO or things alike.
1. 3i Infotech
3. I know that their 2-3 products are very good in the market. But they unnecessarily bought so many companies beyond their financial/operational capabilities. The worst thing was that they were keep on paying dividends and high interest cost. Anyway bad luck also played huge role for this business.
4. Do not buy over leveraged companies. Debt (especially in USD terms) is double edged sword for a business when the overall business slows down. USD debt almost kills companies.
5. I was keep on averaging from around Rs. 100 to 25. Then stopped. Then with some gut feeling (mad feeling), i bought some good quantity at Rs. 8. Then sold all at Rs. 5.
Note: The problem was that i made some money (tasted the blood) in this stock during 2008 financial crisis. At that time, I observed that its CEO also buying a good amount of shares. So i thought that the same situation applicable now also. But this time it is different, the company is almost bankrupted.
1. NCC ( Nagarjuna Construction Company)
3. Construction business was flourishing in 2007 and 2008 but due to the cost of debt increasing day by day the stock has plummeted
4. To have a strict stop loss and don’t average at lower levels.
5. Holding the stock – No, it does not matter even if I sell it, as almost all is lost in the share. It can’t get worse.
satheesh babu says
I will put multiple ones here and divide them into 2 categories – fully exited and holding partially.
For all the reasons mentioned by other tribesmen.
2. Held on to the belief that its a strong management and cash generating business, but realized that the “business environment” matters a lot and the pricing power is coming down. It is an “upgrade or perish” business which needs constant technology upgradation and goverment meddles a lot in the environment in our country.
Sintex, Prathibha Industries
1. 35%, 25%
2. I have been holding these companies for 5+ years now and the business of these companies have been affected primarily in the past 2 years. Factors which seems to be affecting – capital intensiveness + high debt + economic conditions in the country.
3. I am holding about 20% of my original holdings in these companies and am keeping this as a “hope/wishing recovery” investment.
Tejas Jariwala says
1. Opto Circuits India Ltd.
2. – 73%
3. Bought for a long term Investments with rationale like Strong Products, Good Management (Before they hide Report on downgrading by CRISL, generating higher ROE%, PAT, Good Dividend History etc,..)
4. Learnings: Always should look at Free Cash Flow from Operation.
5.Yes, I have booked my Loss
Two diferent scenarios –
1st – No idea about investing but listened to”trustworthy” sources and invested in Sesa goa and Unitech in 2009!!! Talk about the worst sucker ever. Sold only recently after reading again and again Vishal’s advice on letting go of past mistakes and feel much better after the purge. Lost 80% of the investment but consider this my tuition fee 🙂
2nd – Bought Arshiya after reading annual reports and research reports but without giving due consideration about debt and got taken in by all the growth stories and buzz around the stock. Sold all at a 90% loss.
Lesson learnt – don’t go by big names who tom tom their fav. stock of the moment.
Real lesson learnt – discovered value investing & safal niveshak 🙂
1.DLF/Reliance Communications/NCC/Praj Industries
DLF/Reliance Comm/NCC – due to my mistake in picking up a bad business
Praj – things went wrong with the company/business
4. Never buy a stock at higher valuation. Always buy low pe, good dividend yield, low debt, high ROE sustainable good companies and never chase growth. I am now ok with 14% growth (GDP+ Inflation)
5. Booked losses. One company not in this list is NHPC which I bought at IPO but somehow averaged out at a much lower price and loss is very less and notional though I am confident of its prospects in the longer run
I invest in the US markets.
1. LUK (Leucadia National) and GE (general electric), Bank of America (BAC)
2. Nearly 50% (LUK) and GE (35%), BAC (42%)
3. Bad timing or probably there is more, I bought LUK on its way down in 2008 from $52. 2 batches @42 and @39. It was a free fall from there over the next year. This is a great business even today. I was waiting on the sidelines and yet did not capitalize on the situation adding more to my position as it went ALL the way down to $12 and trading less than book value. I should have brought my average down. Same thing with GE (bought at $24(2008) because Buffett had bought it at $27, sold it at $16(2010)), BAC (bought at $28(2008) owing to the juicy dividend and sold it at $16(2010))
4. I still havent learnt my lesson owing to not mastering “Kelly’s criterion” or for that matter, I am at a cross-roads wrt doubling down OR keeping a position no more than 5% or 10% of the entire portfolio. For example, I had money to buy LUK @ 12, but I was wary of increasing my exposure to this position (it could go down more, on a $ basis, this was probably number 1 in terms of size). I am still trying to get my head around portfolio allocation and strategy while running a concentrated position of 5-7 stocks + cash. While dealing with the Sunk Fallacy Bias, I was also motivated by more greed (catching falling daggers) that the stock may be available for less if I waited. As you can imagine, there were many lessons learnt and yet, I still dont have a written process wrt these situations. Things go wrong, often, they will. Sitting down on a calm day, writing down things that I may have to do and sticking to it is probably one of the things that I shall do after writing this post (James Montier: The little book of behavioral investing)
5. I sold LUK for nearly $23 in 2010. Good move on my part as it was forced (liquidated my portfolio). I bought it back at $20 in 2013.
Kabra Extrusions: 40% down, still holding, not sure whether to average down or what..The business is into manufacturing of plastic extrusion machinery
Shamil Abdul Kader says
I bought the company without doing enough analysis. It was a low cost manufacturer of Aluminium under leadership of Birla with decent profits and quite healthy balance sheet. I used to value P/E more than other parameters and it had low P/E by virtue of being in a commodity business. After Novelis acquisition, the debt increased exponentially. I still have faith in the company in the long run with it present in the entire value chain of aluminium and able management, but with the current scenario it is under interest pressure.
Be careful when companies are on an acquisition spree, especially when the debt part is huge.
Sold most of the share when it started coming down, still 20% holding is with me.
Most recent case. Bought 550 ONGC @345 on Jun 28th, just after gas price hike – bought after watching Ms.Shireen Bhan of CNBC lapse into orgasmic ecstasy the night before on tv after the announcement of gas price hike………big mistake…….now CMP is 300.
Shiv Kumar says
Never confuse lust with love! It will always prove to be expensive!
Never was a truer word said 🙂
Guess nobody can beat my case on stupidity stakes 🙂
Okay, I didn’t answer systematically…. here goes :
1.Which stock has earned you the maximum loss ever?
2. How much was that loss, in percentage terms?
13% in 3 weeks. Who knows much more it can get ?
3. In hindsight, was it due to your mistake in picking up a bad business or did things go wrong with the company later that you had not assumed earlier?
My mistake in
1. Trusting judgement of beautiful business channel anchors.
2. Underestimating the wealth destructive ability of the current government.
3. Investing in a public sector company.
4. What was one lesson you learned from that loss/mistake?
1.Never trust Ms.Shireen Bhan.
2.Dont have anything to do with anything which involves the current government.
3.Do not invest in stocks and keep all money in boring FDs till Narendrabhai becomes PM.
5. Have you booked the loss? If not, what are you waiting for?
Not yet. Looking for a better exit point.
Final and most important lesson I learnt :
Henceforth trust only 2 people in your life, both Gujjus : one with your vote and the other with your money.
Narendrabhai and Mukeshbhai.
Kem cho, etc.
Vishal Khandelwal says
Raghav, you just made a blasphemous statement on Safal Niveshak 🙂
What’s blasphemous Vishal – the Narendrabhai part or the Mukeshbhai part ? Haha…
(Mukeshbhai has made me a fortune over the years, by the way….my dad bought Reliance shares in my name when they were in double digits in the the 1980s…and I haven’t sold a single one 🙂 So I dont share the cynicism so many people have with Reliance and Mukeshbhai )
Shiv Kumar says
Now Vishal will be hounded by the Mukeshwadis in addtion to the Modiwadis as well 🙂
Why ? Modi is not popular around here ?
Lalaram Singh says
Appeared cheap looking at the value of land holdings in both the companies. Just when i bought, both of them showed a decent gain, leading me to increase my position (self fulfilling prophecy).
Didn’t research about the history of promoters and corporate governance.
Lesson learnt is that CORPORATE GOVERNANCE and PROMOTER HISTORY should be given high emphasis even if the company looks statistically cheap. In short, if you cant say why the company is cheap, probably it isnt
Havent booked my loss./ Waiting for a generous tide
Reni George says
Well this is unprecedented…never before have i seen people accepting their follies in such a great numbers and that also with actual facts…this truly great.It speaks about the impact that safalniveshak has on its members.Accepting one’s follies is the first step towards a successful Investment life.
Thanks and Regards
Vishal Khandelwal says
Indeed Reni! Even I was surprised to see the number of responses.
Awaiting yours’ 🙂
Reni George says
I think you forgot…mine was the first one on the Facebook which started the flow…………..My life has been full of mistakes…..and that has been my teaching classes
Vishal Khandelwal says
Yes Reni, you shared on FB. But just rewrite it here so that those who are not on FB can get the lessons. 🙂 Regards.
Reni George says
Ok so let me get into details on the lessons learnt in one of my Major Losses…GEODESIC India
1) Company Name :Geodesic India
2) % Loss: 80 %
3) Well i Understood the business very well…as i had spent considerable amount of time in IT career….good products…good business….but i failed to check about management and accounting….used to read the ARs but never scrutinized the ARs….when the price started going down..again took out the ARs and then studied it three or four times…what i came to know was astonishing….most of the cash held in other forms in a Mauritius subsidiary…easy target to get siphoned off..booking business in forwards,that means making sales entries and showing it as incomes,even before realization…product recalls not mentioned….should had smelled the danger at first signal,when they defaulted on FCCB…but some biases took foreground….cash and cash equivalents….and a major a bias…acceptance…how could i go wrong…with this much experience…no no it cant be…it will all get correct….so i was just not ready to accept that i went wrong…One of the worst thing if you are in the market.
4) Always check the management integrity…..most of the companies are run by fools and cheats….do not go by what they speak…Check the annual reports…not once or twice but as many times you can…you will find lot of variables which at the first time missed your eye….Now i do not make it fast…but checks the annual reports…the management talk…again and again..would not mind even if i spend six months in research and still not convinced to buy……opto….clariant are some examples where i did not buy after spending some considerable time in research……Major learning…always thing of preserving the capital…growth will follow if first is followed diligently.
5) Yes I have booked my losses,it pained the first day when i booked,but the stock went down 90 % from there……but that is not the point…when we book losses…we can concentrate on the good stocks that is in the portfolio….
Thanks and regards
Share. Bought price. Cmp
Hcc. 66. 10
Sel manu. 42. 4
Rama pulp. 17. 4
Renuka. 32. 18
I am still holing
And booked huge losses in
Satyam, ksoil and list is long
But earlier i dont know investing really
I started reading safal nivesk and trying to learn evalute companies…
Akhilesh Pathak says
85% ( bought it in July 2008 and it shot up by more than 35 % by August 2008. Sold entire holding in Auguts 08. Very soon it came to my earlier buying price and I started buying again, averaging at lower levels only to finally sell it at a huge loss).
It was a mistake because business was not generating enough cash. Although the sales were rising and it was touted as the next infosys which can bring down the T&D losses in energy sector in India and worldwide. But receivables were building up. Most of the clients were state govt. utilities which were already incurring huge losses and payment cycle was 200+ days in some cases.
Never pay any price for a company based on its future growth only. Price is what you see..value is what you get.
Yes, have booked the loss.
shivprakash H says
1. Suzlon Energy (Suzi)
3. Green Energy is the Future!! hence so Suzi is the Future never looked at the Debt it took took buy companies.
4. Do Your Homework, understand the business, promoters, financials etc…
5. Yes, I have booked my loss.
Few other are Bharti Airtel (19%) , Tata steel (21%) and Canara bank (10%)
SUNIL PATIL says
Ankur Drugs and Pharma:
Bought at 140 on advice initiated by Moneylife mag
Vishal Khandelwal says
Sunil, what was the lesson learnt?
1. Geodesic (80% of my portolifio)
3. Got carried away with financial analysis post in geoinvestor blog
4. Still trying to analyse what went wrong. The company FY12 balance sheet shows 1000+ crs in foreign banks, I had believed they will have big role to play in Aadhar enabled direct payment system, PDS (Food security bill), NREGA. But past 2 quarters, management has gone completely numb, not communicating to shareholders, stock exchange. They have defaulted in FCCB payment, Buyback, Dividend, Promoter pledged shares being forcefully sold by banks, employee not given salary.. Surprised what SEBI & Auditors are doing.
5. holding on still, hoping things will change by next year when some actions mentioned in point 4 happens.. or if the company get taken over or atleast would like to see promoters going to jail like in satyam case.
Vishal Khandelwal says
Thanks Arun! However, you did not mention the lessons learned from this loss. An obvious one that I see is that of a stock forming 80% of your portfolio! This is as big a risk as any investor can take.
Also, “hope” is a dangerous ally in the stock market. Un-friend it as soon as possible. 🙂
We should aslo ask if any of the SN tribesmen really made money via his direct stock market investment portfolio (not as individual stock profit or loss). There may be few like Mr. RK who made it but most others are likely to have made more losses than any profits. Also, even if they had made small profits on some stock(s), it is most likely that they would have made a equally much bigger loss(es) on other stocks.
It is equally important, that we see the loss or profit on portfolio basis rather than on indivdual stock basis.
I confess here that My losses are approx. (-ve) 10% on annualized basis over a period of 5 years. On the other hand my MF folio provided me a (+ve) 10% during the same period, primarily due to SIP investing, which is a decent return compared with market performance.
Lesson learnt: Unless, you have made an portfolio gain of 12 – 15%+ on an annual basis for the last 5 years (which proves you are fit for direct stock investment), treat your entire direct stock investment portfolio has a ‘Sin Money’ limit it to a certain percentage that suits your comfortable level but dont exceed 10% of the total folio value. It means you are ready to accept a complete loss of capital.
Moreover, unless you are a big ticket investor, it is better investing through mutual funds systematically. Most of the small retail investors typically hold majority of their money in FD’s and post office, etc. which earn negative real returns and comparitively hold a very small value of holdings in direct stocks. However, they spend worrying about stocks more and spend most of their time (looking for tips, news, etc.about selected stocks) on it than any other investment. Actually they should be more worried about their FD’s/other investment that provide negative real returns.
Excellent points, Ajay. Indeed this is a very important question, and yes, I admit, I’ve made minor losses over my direct equity investments in last 6 years. However, I should not call them investments – they were un-informed bets.
I however hope that after learning, I’ll slowly turn these losses into profits, and I do agree one must limit stock exposure and slowly increase it…
I also think there’re some successful investors on the forum, but they’re at least 10+ years experience (except Vishal)
Vishal Khandelwal says
Thanks for your suggestion, Ajay. In fact that was going to be my next post. 🙂
Reni George says
After the dark,there is sunlight…..well overall iam in profit in stocks,that is what market teaches,might have lost in quite a few,but other made money some 2x and some even 10x…that is the beauty of the market…went through lot pain but still held on.
Right now also going through lot of pain…but still iam buying and buying the good chaps.
Thanks and Regards
I really like and agree with both your ideas
1) Of proving yourself (to yourself) before making big investments.
2) Parking funds in Debt funds is better than in FDs. This return (plus some principal amount) could be used to slowly invest in stocks.
I’ve realized that I am prone to big mistakes. No matter how much effort I put in, if Reni can make mistakes… then I could fall 100 times harder. This fall will be cushioned by spreading my investment over years.
ca amit says
my list is large & growing……lesson learnt but market has MUCH more to teach….HCC / Diana Tea / Kalpena industries / Gulsha Poly / KLG systel / Kalyani Steels / Suzlon / TATA tele…………
good ones………….Piramal / Selan / Eros .
Vishal Khandelwal says
Hi Amit, while it’s good to know about gainers and losers, it will be helpful if you can write your comment in the format suggested in the post (the five questions).
Also, please write about just “one” stock.
2. Perpetual ( Cant be absolute in percentage )
3. Nothing to do with company financials, its purely overconfidence on my behalf. I sold HUL at offer price though bought at quite bargain level.Now to again reach that buying level, need 2008 kind of market crash.
4. Never speculate with great business particularly if you bought that at bargain price and fundamentals are intact. Only two reason to sell great business is 1) Personal need 2) Degrading business scenario. Neither was in my case.
5. Booked Loss.. ( Surrendering growth opportunity is also LOSS )
This comment was posted for your post Weapon of Mass ‘Temptation’ that Destroys Stock Market Investors”. I repeat the same here for sharing with the readers onceagain and to remind myself about my mistakes.
Let me accept the fact that I have lost lot of money in quite a few stocks going by the research reports and the facts presented to me (eventhough I paid for those research reports) that they are worthy stocks and further recommended to avearge down whenever it went low. Some of the stocks to name are as follows (just for the benefit of the readers):
Allied Digital – Stated as strong fundamentals, Intel has picked stake, Unique services, tie-ups with multi national, strong growth rate, ROE, FII interest etc.- Stock fell from 225Rs. or so to Rs. 18 now at 11. My loss was around 2.25Lacs. Infact when there was a raid, the message is spread that it was only a routine verification and it is opportune time to buy this stock. No change in fundamentals. Company announces a buyback.
Deccan Chronicle – Strong player in A.P, Growth will add to ADV revenues, Odyssey will add value, Deccan chargers will be a Huge potential to the stock, Higher promoter holding and buy back etc. – Stock fell from 160 to 28 and now at 3. Cash value of the stock is equal to the market value etc. My loss was 1.5 Lac. I did not sell the stock, but I have written of this investment.
C&C Construction – Strong player in Bihar and Afghanistan, High Margin Project, good execution capability etc. Stock fell from 225 to 60 and now at 23. My loss was 75K.
Similiarly booked losses in IVRCL – Loss of 1Lac, Lakshmi Energy – loss of 1.4L, Sintex – 150K, MIC Electronics – 1Lac, Volatamp – 80K.
Also there are other stocks on which I am holding on to my losses: Bharat Bijlee, ILFS Invest, Noida Toll, NIIT Maha Seam less, SRF, Shipping Corp, SAIL, Nalco, Tata Investment and so on. Even on large caps you can lose heavily, I am still holding on to my losses on BHEL, Tata Steel, IDFC& Corporation Bank.
Although I used a paid service of reputed and ethical Independent Analyst (I.A), I alone was the loser and the losses were mainly due to the obvious reasons mentioned in your article. I did avearge down on the basis of further reports or specific recommedation from I.A. that turned out to be a fatal mistake from my side. Though I followed the rule of not exceeding 5% limit on a particular stock investment. I did not save me from individual high value losses.
I have now changed my habit albeit after suffering huge losses. For the benefit of readers, in order to share my experience with fellow readers I share the following:
1. Never buy a stock without knowing about a company and basic knowledge of fundamental analysis (atleast to the extend you understand).
2. Never buy a stock based on Stock research reports (paid or unpaid). It can at best only a starting point to filter out shares and it should never be a basis for investing in it.
3. Never buy a stock based on the fact that a stock has fallen by 90% it should be cheap. (e.g Deccan chronicle or Allied digital). Cheap can become cheaper and may not exist to trade (Deccan is not there in NSE).
4. Never invest in an hot IPO or hot sector (Reliance Power / Facebook IPO or Infra in 2008, although I did not invest in both).
5. Never listen to stock analyst on TV channels and act upon its recommendation (you can still see recommendations made in Suzlon, GVK’s).
6. Never buy a small and mid cap stock (however attractive it may be) unless you have scrutinized it so thoroughly and understand it without any doubts. At best don’t buy it when you cant afford it and also don’t buy it when you can afford it.
The net profit margins of Tata Steel and SAIL were going down consistently for a long time no wonder the stock price also went down.
If not on scale similar to written above, I have also made losses in several scripts from same IA.
CC constructions, Allied digital, Noida Toll Bridge, 3I infotech, Lakshmi Energy, Tulip Telecom – Close to 80 to 90 % loss.
Bharati Shipyard ( 80%) – based on another IA firm which claimed to find fair value for stocks
Bajaj Hindustan – Bought when I had no idea of stocks. Recommendation of stock broker ..Kayaal Kud ka. My foolishness.
Suzlon Energy : TV ads appearing in different parts of the world 🙁 ( 80 %)
List can go on and on ..
Biggest lesson learnt as of now..:
1) Buying/Selling is not Just internet connection, ,demat account and research reports (paid or unpaid)
2) If you dont have time to read and understand AR, business model etc Mr Prashant Jain , Mr Apoorva Shah, Mr Kenneth Andre, Mr Shanran Naren can help you :-). 2% fee spent is worth than booking losses
3) Dont hurry to build portfolio. Market will offer many opportunities ,..
4) Need to study a lot . No substitutes. Period.
5) Many lessons are very well blogged by people like Vishal on blog. Unfortunately I am late in the game.
1. Kavveri Telecom
2. Approx 50%
3. I did not pay attention to the poor business performance. The business was not doing good but I hoped it will turnaround and valuations seemed cheap. Also got carried away by some past reports, news, etc.
4. Lesson learned is to pay close attention to the business, corporate governance, and feedback from others. Some people did warn me about it but somehow I though the issues will get solved, but it worsened.
5. Booked loss and moved on. I’ve written these transactions as a reminder so that I can avoid same mistakes in future. I’m happy about the decision because things are worsening for this stock.
Booking loss is the best option when the foundations are bad – for instance if the company’s business is flawed, financials are poor, has corporate governance issues, pledged stock, etc. There are some visible signs that I learnt after this and other failures. Secondly discussing with fellow experts, investors, etc can help you validate and get more information which you might be missing out on.
Vidyanshu Pandey says
1. Which stock has earned you the maximum loss ever? RCOM
2. How much was that loss, in percentage terms? 80%
3. In hindsight, was it due to your mistake in picking up a bad business or did things go wrong with the company later that you had not assumed earlier? Mistook Telecom for consumer monopoly. Did not understand that it was merely a commodity business which was highly capital intensive and would be subjected to regulatory price controls. Also the debt ballooned and eventually got disgusted with the Financial Shenanigans on RCOM’s AR’s.
4. What was one lesson you learned from that loss/mistake? To do a more thorough due diligence and stick to circle of competence.
5. Have you booked the loss? If not, what are you waiting for? Waited for a very long time to recoup some losses (waiting for Godot Syndrome 🙂 ). Booked losses near bottom at Rs. 76.
Hemang Shah says
1) klg Systel (well the List is actually long but will stick to only 1)
2) Almost 80%
3) Looked like a software Co with exciting products; but untested; initially the stock did very well so thought was on the right track( confirmation bias); was getting news like IBM buying a stake and all (couldn’t confirm any of it)
4) Never get carried away with companies with an unproven track record no matter how good the prospects; Do not forget Base rates in case of companies while investing; Do not invest based on Tips; Do your groundwork like your life depended on it.
5) Yes Sold it (Thats the one thing i learnt very early —To cut ones losses)
3. Recommended by broker and also suggested by paid research company.
4. Never carried away by suggestions from others and don’t waste money on getting paid research reports instead of do own homework before investing even Rs 1 😉
5. Yes, when I understood my mistake I booked the losses.
Akshay Jain says
1. GSFC – Gujarat State Fertilizers & Chemicals
2. Buy Price = Rs. 71; Loss = 25%
3. I was obsessed with buying what I thought was extremely cheap, often sacrificing on that top quality business
4. Investors should be ready to pay up reasonably for quality and growth
5. Yes have booked the loss
2.buy at 690 before bonus issuse after bonus 390 average
3.i was buy because i will get more number of shares, i know the price of the scrip is also adjusted after ex date.
4.investors should be carefull about the bonus issuses before buying any business.
5.still i am holding the business.i have to learn more about the language of business.
My humble advise to all : please learn the language of business… reading balance sheets and annual reports…and evaluate them..don’t relay 100% on external resources.it is hard initially…learn it.
More than specific stocks (and yes, the list is long) ending up with loss, it was my nature of dealing with stocks – In true definition, I was not an investor (definitely not a value-investor). I was probably a trader – with 6-8 months horizon – I even committed the crime to try out day-trading.
The change happened 2.5 years back (and it is funny story)… I asked my wife to consider stock investing (that was the time when I was thinking on lines of ‘if something happens to me, how will my family sustain’) – but she is not much of a person who considers investing – basically, finance is not something that interests her – but after lot of coaxing, she took it seriously and asked me how she should go about it – “…on what basis do you purchase stocks…” – I “tried” to explain and justify my so-called purchases and we discussed over this for quite a few days – & finally, when I finished my babbling – she said – ‘you simply gamble’ and that was an eye-opener !
That’s when she gifted me the book ‘Snowball’, that changed my outlook to dealing with stocks !!! I sold off all my previous holdings – most of them in loss ! This was 2.5 years back !
> Never trade – Never
> Invest with a mindset to hold it ‘forever’ at 60% discount of MRP – otherwise, wait and watch
> Come-up with a strategy for portfolio
– Invest every month (SIP model, but direct stock purchase) roughly 60% of savings in stocks, rest goes into:
– short-term (1 yr) – FDs (that i can use to pick stocks when market crashes – still waiting)
– medium term (5 yr) – NCDs
– long-term – PPFs
> Still need to come-up with 2 good MF to park part of savings.
– Analyze every stock that I hear of – check two things mainly – promoters + business
– After analyzing, when I have short-listed the stocks, finalize the list to pick stocks as:
1. Large cap (60%) + Mid Cap (40%)
2. With good dividend yield > 4% (40% split) +
stocks with sales, EPS, BVPS for last 7 – 10 years > 20% (rest 60%)
> Re-visit the strategy every year or two.
With last 1.5 years as value-investor (yes, took me 6 months to complete ‘Snowball’ and then I went on to read few other bibles of investment philosophy, including ‘The Intelligent Investor’ & ‘Security Analysis’), so far I have not sold any stock that I have purchased (including some which are in red – with approx. 10-15% loss). I am not yet sure whether i am biased about the purchases – something that future will tell.
Can you tell which stocks are in the red?
NMDC, Sintex, AllCargo, SAIL
The net profit margins of SAIL were going down consistently for a long time no wonder the stock price also went down.
In case of sintex the cash flow from operations were consistently lower than net income that is a clear sign that you should avoid the company.
Archit Mantri says
I am just 19 year old. I lost y initial stipend saving of 50 thousand rupees in:
KM Sugar Mills – 2200
Birla Cotsyn – 25000
GTL Infra – 5000
IDBI Bank – 5000
Intra Day Trading- 20000.
Rahul Kashyap says
1. Tata Steel, Torrent Power
2 58%, 55%
3 Not exactly a mistake, bought a blue chip steel company in Tata Steel case, but the company suffered due to a bad Europe market, with heavy debt on it. Torrent Power, subsequently realised that promoter quality is not very good plus it was debt laden
4 Avoid debt, but if u must buy such companies, have a sound reasoning
5 Holding on to both of them, it cant get much worse !
Why you say there is some issue with promoter of Torrent Power? I have Torrent Pharma in my watchlist. Tribesmen, please share any inputs if you have any inputs on integrity of the management of Torrent group.I was thinking they are very good.
Rahul Kashyap says
Chairman of the torrent group has bought Rs.111 cr worth bungalow in Delhi’s Lutyen’s Zone, well covered by the media. Such a step, when their companies are laden in debt, specially torrent power, does not seem well
I feel that is his personal thing. Power sector is capital intensive. Have you seen debt level of Tata Power? Power sector is capital intensive. Hence he can’t do much. I have gone through their website. It seems they are investor oriented. I am confused now. Rahul and other, do you have any inputs related to their intergrity when managing the companies like some issues in accouting or not treating minoity shareholders well etc
Rahul Kashyap says
Obviously its his personal thing. Even Naveen Jindal’s Rs.70 cr package is his personal thing. Shareholder money ! If its capital intensive, the returns too should be intensive ! And as per website, pl give me one website which is NOT investor oriented.
RAKESH RATHOD says
Just on hopes that its real estate will be trigger which never happened Busiess was loosing big time
Never go on hear and say and never believe in miracles
stock bought at 225 Hold for 2 years sold for 15o part and later at 90 Rs rest Today its 30
S1. Opto Circutis
87% (still holding; gonna purge)
S2. JSW Energy
25% (wrong entry level at 78!)
S3. HCC, McNally Bharath, GMR Infra
>30% (went by news and !)
Booked loss around 60%
Got influenced by several broking house reports as positive outlook
moreover the industry was making really profitable
but the corporate governance and high valuation were against my call
I repent why didnt I sell earlier
Though easy to say but corporate governance is not easy to predict or project -still dont know how to know that in advance
hello frnds the list is long…but to cut it short…
booked more than 90% losss…
bought due to peer pressure…as frnd and colleages had bought it.
booked 60% loss…
as at that point in time…over all capex cycle across the world was in upswing…and so all the steel and infra comps did well….
got carried away in that wave…
now there is a slump in over world economy…and so results slump in other spending…..and that result in end of commodity boom…
some more i need to add….
1. I used to buy anything..when it price went up or some friend had invested in it and profited from it. ( left out bias) . I had bought united spirit after deigo announcement and also had bought gsk consumer afer promoter buy back….was fortunate..to get out of both..before the news euphoria faded…..!
Lesson learnt (after reading intelligent investor & your numerous posts):
• Don’t chase which has already gone up …as it has already become a pricey / expensive…example: jet airway after ethihad deal..and united spirit after deigo deal.
2. I used to buy anything..when it price went drastically down… ( over greed that I am geeting it at a bargain or throw away price)
Lesson learnt (after reading your numerous posts & sanjay bakshi ji):
• Don’t catch the falling knife, the price must have gone down..because……there must be something genuinely…bad in the business / earning / promoter or eniviroment…
Bought wockhardt…..at 900 levels….still holding it….
But this exp made me smart…and helped me to avoid…HDIL / OPTO / Financial Tech / Gitanjali…..etc…….
3. The third confession…by now you must have judged by investment temperament….more of a short term oriented person……as I also have realized myself….I am improving on that aspect.
Thanks to Vishali ji for his guidance in my journey to rediscover myself as an investor.
Richa Sethia says
1. Which stock has earned you the maximum loss ever? S Kumar Nationwide Limited
2. How much was that loss, in percentage terms? 96%
3. In hindsight, was it due to your mistake in picking up a bad business or did things go wrong with the company later that you had not assumed earlier? It was my second direct equity investment, that even at a friend’s recommendation, on the market rumour that Reid & Taylor IPO would be out soon.
What was one lesson you learned from that loss/mistake? Always always invest responsibly (after thorough research & only when convinced) and not recklessly like I did at recommendations. And like Vishal mentioned that even Warren Buffet hated Textiles, now I hate them too 🙁
Have you booked the loss? If not, what are you waiting for? Have not booked any loss yet, because I feel its pointless now. Should have acted earlier. But this early blow to my fortunes has taught me my lesson.
I went through all the posts and one thing that struck me was that several people have invested in strong companies with strong business, finest of managements etc (Tata Steel being a case in point). As Warren Buffet says that if you believe in the business and if you have invested in the business, then do not worry about the interim swings in prices. Steel being a cyclical business, as we all know, is currently at its nadir globally. But investments made in strong companies in this sector is sure to bear rich dividends in the long term. For cyclical industries, one has to take a view accordingly. Hence, a transient notional loss should not concern a value investor so much.
Thanks and regards,