Investing Lessons/"Mistakes" from 2020?

[bizaro86]

is there a big reason for dip that scares me? (then dont buy),

Has this worked for you in the past?

My heuristic of buying a bunch when I'm absolutely terrified has worked great so far. I feel like crap for the duration of the downturn but I make a lot of money. That said, there hasn't been a decade long decline during my investing life.

It just seems like not buying when there's a reason for the dip makes it likely that you'll miss all the dips. In that case, something like dollar cost averaging or remaining a specific % invested might be better.

[cherzeca]

is there a big reason for dip that scares me? (then dont buy),

Has this worked for you in the past?

My heuristic of buying a bunch when I'm absolutely terrified has worked great so far. I feel like crap for the duration of the downturn but I make a lot of money. That said, there hasn't been a decade long decline during my investing life.

It just seems like not buying when there's a reason for the dip makes it likely that you'll miss all the dips. In that case, something like dollar cost averaging or remaining a specific % invested might be better.

I am in safety first mode.  I accept the be greedy when every one is fearful meme, but I dont need to be a hero. my whole point is that if you are worried about regret, or you find yourself regretful too often, then either dont invest (as I think regret is corrosive) or invest with a mindset that acknowledges that you will be wrong in many details at many times...but if you have an ordering principle that works for you, then there should be no regrets...mistakes yes, but no regrets

[Dalal.Holdings]

Do you think there is anything about your process that you would have changed?

In general, I caution against drawing too many strong conclusions about your investment process during this particular market swing because I think it made a lot of people look silly and some of those people wouldn't look silly in an alternative version of events, whereas some of my decisions to hold on might look smart now but could have been disastrous. 

I know I passed on some things in March/April thinking that we were going to be in for some rough times in the economy (and market).

I continue to try and spend less time worrying about the macro environment. It is paralyzing at times and makes everything look like a bad investment because it can always go lower. I have left a lot of money on the table and was unfortunately surrounded by a colleague in my earlier years who was even more cautious than I was already (holding 40% cash for 7+ years, etc.)

I don't know if this matches with your investment style, but I like the analogy Peter Lynch gave about investing and 7 stud poker in his book Good to Great. The information available is always evolving, so if you feel like you know a business well enough to invest and think the odds might be there, I have gotten in the practice of buying small positions with the intention to scale up either when prices become more reasonable for a business I like and understand well, or to scale up when a business I know less well begins to give more concrete signs of success.

Obviously we disagree about certain individual issues, but this is a good assessment. It's very easy to fool yourself into thinking you made a mistake in the immediate past. Only in the long run do mistakes become apparent. Many folks would have called it a mistake to sit out in 1999-2000 ...

You have to think -- given what was known at the time, was my action a mistake or wise? And ignore the outcome especially if it's a short term outcome.

I too missed out on RUBI/MGNI, but the jury is still out on whether it will be a long term success story if you ask me

[valueinvestor]

Although I understand that the jury is out - that goes without saying. However, to say that some of these picks could be mistakes in the future is bonkers. Of course, you shouldn't let regret hold you back, but you shouldn't let blindness guide you forward.

We all have to work on incomplete information and we're all not psychics.

However, to say that jury still out on some of these picks where a 90% decline will only result in a 100% gain on the investment is ludicrous.

[valueinvestor]

One straightforward mistake that I made in 2020 was tactical, on the personal finance front - while I was re-allocating capital during the drawdown in March, I simply made selection changes in my kids 529 accounts to move them from cash to US equity, and after two such moves was told I was not allowed any more changes for 2020.  Looking back, I missed out on pouring in the maximum allowed new annual contribution of $70,000 in each child's accounts simply because I took at face value what I was told on the phone and didn't think about pouring new money in. It would have made a world of difference to put more money in these tax-free Roth IRA like accounts with 10-15 year runways.

Another on specific company selection was missing out to emerging platform companies in my field of healthcare - not realizing how Teladoc is on its way to becoming one of the premier platform companies in telemedicine during the pandemic, while knowing well what it had done during the hurricanes in Texas and Puerto Rico. Why it happened - because I didn't think about long term effects of COVID-19, just focused on market timing in March and then held back when markets started going back up. Lesson learned - now I am looking closely at edu-tech companies on their way to becoming the platforms in higher education, TwoU being one of them that I hold - Coursera is another but is not publicly traded yet. Missing out on investing in Google at $1000-1200 was another hare-brained mistake, despite seeing how much of a moat Google was building in the classrooms from elementary education to graduate students.

The big picture lesson learned was that it is very difficult to think rationally on a consistent basis in the middle of a storm, there are so many things going on in life. There is a lot of value in thinking of how to make portfolio level changes well ahead of the year that lies ahead. This inspired me to take a course on Investment philosophies in Fall 2020 and reorganize my portfolio. I have also realized that the international financial system is inherently unstable, and hopefully, this means more opportunities lie ahead for the brave and well prepared.

Yea - there's no one saying that it's too late. It never is.

You're not the only one to take information at face value. My friend and I wanted to watch avengers, and I mentioned checking the showtimes to go and watch. She mentioned that she recently saw the trailer and it was due to come out a week later. I still told her to check, because it may be for other audiences - she said the trailer ran on a Canadian channel. Still asked to check anyways - turns out we were both right, in other cities, it was due on that date, but we were close to a theatre that had an early viewing.

Lesson: If the information does not come from primary information - take it with a grain of salt.

[valueinvestor]

Also to give the POV of you never know if it is a mistake(granted an oversimplification of their view) some credit - buying is step one. Step two is when to sell. Not sure if I would've kept it when these positions ripped up.

[WayWardCloud]

Selling entirely my huge 15% position in JD.com at $38 in April after holding it for two years from around $35. It trades at $100 now.

Why? The stock was flat since January while some of my other holdings like BAC and WFC were down 35% so I concluded the later had become relatively better investments and that it made sense to move capital towards the bigger bargains.
I was expecting China to be faring much worse than the US given that it was the original birthplace of the pandemic.
I was also convinced their weird looking number of cases/death charts were a fraud and the government was hiding a massive number of cases that was going to be revealed any day (I'm still fairly convinced the numbers were fake but they did end up controlling the epidemic very well moving away quickly from their first "cover up and deny everything" response, while on the other hand the US government... Well, let's not go there.)

Mistake The logic was flawed because I failed to recognize the crisis had not hurt all companies in the same way. Maybe one company deserves a -35% and another one 0% due to a specific set of new circumstances. Can't get stuck on old price targets when the world has clearly changed. I knew JD as an online retailer was founded during the Asian SARS crisis and I should have realized they would be very well equipped for this.

[kab60]

I doubled down on Airlines, thinking this pandemic was nothing more than other pandemic scares and that things would quickly blow over. Then I sold very close to the bottom.

Underestimating external shocks, and their sometimes very real effects on specific Companies, was clearly a mistake. Selling near the bottom was fine, since I found much better risk/rewards elsewhere. I also sat sucking my thumb on Lands End at 4/share, missing a multibagger in a Company in knew well which was already going through what seemed like a successful transition. Not sure it was a mistake though, I found better businesses I was more comfortable with.

Anyway, it seems investors often tend to learn the wrong lessons from their mistakes - if they're even mistakes - potentially compounding the problem. Investors often seem to take a couple of data points and conclude that they were either right or wrong, but the sample size is clearly ridiculously small, so it's basically resulting. I think investors could learn a great deal from professional poker players and their emphasis on process instead of outcomes. The recent investment letter by Coho Capital is very interesting in that regard.

It's interesting how firms like Saga Partners and Curreen have staged a comeback (Cureen only somewhat...) doing what to me seems a bit like YOLO-trades (but which have worked out). It's a humbling business, and feeling like one has found the magic beans after putting up a tremendous year might be dangerous.

I know from myself that I felt a bit stupid during March - being down close to 50 pct. from February highs - despite having high conviction in my ideas. Ending up 45 pct. for the year, and with pretty much every trade working out lately, I've been feeling like a champ and have been inclined to add risk instead of reducing risk. Which, obviously, is a very, very dangerous spot to be in.

[mattee2264]

b]Falling for the bear market rally narrative[/b]

At the time it seemed reasonable to take advantage of the initial rally to raise some cash. Buffett was pretty bearish and most economists believed there was a strong possibility of a depression and the economy would take years to recover and most health experts warned that vaccines take years to develop. As such it seemed strange to see the market back trading at around 20x pre-COVID earnings and only 20% off pre-COVID highs.

What I should have done is focused on base cases. A 30% decline is pretty typical for bear markets and the base case after an event driven bear market is a sharp V shaped recovery. So there was every possibility that the market bottomed in March (as proved to be the case).  Also while the health and economic uncertainty remained incredibly high most of the S&P 500 consisted of companies incredibly well positioned for the pandemic.  And of course I should have expected that in a no-fault recession the governments and central banks worldwide would do whatever it takes to support markets and the economy.

Also even if the rally did reflect excessive optimism I should have realized that events could subsequently justify that optimism which turned out to the the case.

Of course turned out to be very costly because now I'm sitting in far too much cash and virtually everything is up over 50% or more from their 52w lows. And with the market showing no signs of slowing down watching the market continue to run away from me is increasingly painful and I am feeling very foolish.

[SharperDingaan]

Seems really obvious, but a great many don't seem to recognize it .....

Every week, the business press routinely tells of company blow-ups. Maybe let the press do your 'searching' for you?
Almost always the company didn't meet short-term expectations, people need a whipping boy, and it's the share price taking the beating. Nobody wants to look stupid bucking the crowds 'obvious wisdom' (fear), and the paralysis magnifies the eventual loss on sale. Yet for many of these lepers, the underlying business hasn't really changed - just the valuation; and agency risk is now working very much in your favor. Most times we've taken advantage, it's been a 2 quarter investment, and we've done very well. 

Will next quarter be better?
If you think it will, the obvious thing is to enter a trading position today that exits next quarter; if you think it will not, exit today and buy back next quarter. If you think the next half will be better, do the same thing - but just with more shares. As you know the company well, know the 2-3 things that make it money, and know what's happening in its industries - it's not a big stretch. Most times we've entered a swing trade, it's worked out our way.

If you are going to invest via 'formula' (ie: filters), your comparative is the index. And most times the index ROI will win - simply because you're spending too much time in 'analysis'. Either invest differently, or do something else.

SD