2019 was a fun year of investing for me and I feel like I learned a lot of investing lessons that I hope to carry forward. I have recognized some of my mistakes this year in previous posts but what good is acknowledging mistakes if I am not going to learn from them. Some of the lessons I’ve learned may seem very obvious to many but I still needed to learn them in real life. I might as well get right into it.
Investing Lessons: #1
Do Your Own Research
What I feel like is my most glaring mistake this year was buying Datable Technology Corp. (DAC.V). DAC went on a run in the spring of 2019. As a result, some investors on Twitter were pumping up DAC. I was influenced by their rosy outlooks on DAC as it reached $0.11. I bought a position hoping to earn a nice return over a medium-term holding period.
The research I conducted on Datable before buying was pitiful. I didn’t read through their financials but briefly looked through Datable’s page on Yahoo Finance. I bought DAC at $.11 right at the top. Since then it’s been a freefall all the way down to $0.025.
If I had done some brief research I would have seen they were running out of money, unprofitable, and not growing all that fast. Since my purchase, Datable has issued shares twice to raise money. They have added 21 million shares and an additional 21 million warrants to their share structure just to keep the company going.
There is more than one mistake that can be acknowledged with the decision I made on Datable. The first investing lesson is to not get caught up in the pumping on Twitter. This lesson seems so obvious but one that took some losses for me to understand.
Twitter has been a priceless resource. I have met many great investors on Twitter that are more than willing to answer questions and provide their insights. Twitter is also a great place to find new ideas. However, everyone on Twitter has their own agenda.
Beware of the Twitter pumpers and above all else do your own research and build your own conviction.
Investing Lessons: #2
Add to Your Winners on Real Results
Throughout my readings on investing I have often read to add to your winners and sell your losers. Peter Lynch said
“One of the oldest sayings on Wall Street is “Let your winners run, and cut your losers.” It’s easy to make a mistake and do the opposite, pulling out the flowers and watering the weeds. Warren Buffett quoted me on this point in one of his famous annual reports (as thrilling to me as getting invited to the White House). If you’re lucky enough to have one golden egg in your portfolio, it may not matter if you have a couple of rotten ones in there with it.”
The thinking behind the strategy is that you will have more success in adding capital to companies that are experiencing success, and as a result share appreciation. There have been studies showing that investors experience psychological barriers when investing in companies at fifty-two-week highs but typically those companies continue to establish new highs.
My goal isn’t to just blindly buy companies on fifty-two-week highs but to add to companies that are executing and experiencing success. I was a little off the mark this year implementing this strategy.
Instead of adding to companies that reported financial success I misinterpreted news releases as execution. One example is a news release from CO2 Gro Inc. from April 10th, 2019. CO2 Gro travelled to Abu Dhabi for an ag-tech conference. They reported being fully booked with potential customers. Based on this news release I decided to add to my position in CO2 Gro at around $0.45. Although this was a nice news release I bought more on speculation that this would lead to new contracts instead of waiting for real results.
The connections they made in Abu Dhabi has lead to a partnership with a Middle Eastern CO2 gas supplier however GROW did not announce any commercial contracts by year-end 2019.
Investing lesson number two is adding to a position on real financial results and not just news releases. In the future, I will look to add to positions with management teams that execute and achieve what they have told investors they plan to achieve.
Investing Lesson #3
Don’t Trust Guidance
Be very wary of guidance given by companies unless they have an established track record of meeting or beating that guidance. Three of the companies I invested in this year gave some form of guidance and failed to deliver.
CO2 Gro Inc (GROW.V): 10 million dollar revenue run rate by year-end 2019. Currently at $250k run rate.
RIWI Corp (RIW.CN): RIWI predicted two of their three business lines would grow by 150% in 2019. RIWI has grown revenue by 42% in the last twelve months.
Good Life Networks (now Aquarius AI AQUA.V): $67 million in revenue 2019, $100 million in 2020. Aquarius is out of money and has huge debts. They will be lucky to be in business in 2020 let alone a $100 million revenue company. (This will be the last time I bring up Good Life Networks. I keep referring to it in my posts because I learned a lot from the experience.)
Guidance is only a guess by management. How things will go a year from now is very difficult to predict. I’ve gotten to a point where I don’t want my microcap companies to give guidance. If they do give guidance it should be conservative. I understand why some companies give guidance, to boost or maintain share price for an equity raise perhaps. For a profitable and well-run company like RIWI, I don’t see the need. Let your financials do the talking and the share price will follow.
Don’t blindly accept the guidance given by management. Use your own judgement and the companies history to formulate your own opinion on where the company is heading and if managements guidance can relied upon.
Investing Lessons #4
Don’t Chase Stock Price
This year I made a few mistakes chasing the stock price of some companies. I have had a difficult time picking what a reasonable entry point is once I have made the decision to buy. Once I have done my research and made a decision I want to own the company right away, instead, I need to have more patience.
My first example is my purchase of Atlas Engineered Products (AEP.V). I have been following AEP for quite some time and made the decision to start a position. The share price was around $.42. I set my limit order at $0.39. I always seem to want to enter a position just below its current price instead of accepting the current price.
AEP’s share price rose to $.50 and they were releasing strong revenue growth numbers. However, there was also a lot of noise that they would be doing an equity raise. As the price rose to $.50 I continually increased my limit order to just below the share price and never got filled. I eventually bought at $.48. They recently announced an equity raise at $.40.
My second example was my entry into Polaris Infrastructure Funds (PIF.TO). All the research I had read indicated that anything under $15 is a cheap price for PIF. I bought my position at $13.25 just before earnings. Polaris’s earnings were not well received. Since then Polaris dropped down to $10.95 before recovering back to the mid $12s.
I need to put more thought into what reasonable entry price is for a position. I plan on holding both of these positions for multiple years so the 10-20% that I did not capture by buying at a lower price won’t be the downfall of my portfolio. That doesn’t mean that I shouldn’t strive to do better. Once a stock price starts to rise I get the feeling that I need to get in now before it is too late. In both of these instances, patience would have paid off.
By spending a little bit more time assessing a companies valuation I think I can build more confidence in selecting a comfortable entry point and not just picking an arbitrary number slightly below the current price. I haven’t spent any time learning technical analysis. I think even some basic understanding of technical analysis may help me in this area as well. Of the five investing lessons I talk about I think this will be the most difficult to master.
Investing Lesson #5
My Blog Has Value, At Least to Me
When I started the Battleship Investing Blog I had no idea what to expect. My goal was to slow down my investing decisions by documenting them. If I was going to document them why not share them. I didn’t know if anyone would care but the feedback I have received has been very positive.
I have no business education and have only been investing my own money for a short period of time. My goal is not to get more people to buy companies I own but to try and illicit feedback or point out mistakes I have made. I have experienced success in this aspect as I have had conversations with other like-minded investors around the world who have pointed out errors I have made or risks with a company that I have overlooked.
Through my blog, I have started to build a network of fellow investors that I can bounce ideas off of. I have learned many investing lessons this year, a lot of that I owe to being open and sharing through my blog and Twitter.
The more you contribute to a community the more you will get back. I plan to keep adding to my blog in 2020 in hopes of building my network further.
To sum up my 2019, I am happy with the progress I have made. I am able to look at companies much more thoughtfully than I was able to at the beginning of the year. Hopefully, my writing reflects that. Some of my losses this year that I chalk up to inexperience and poor behavioural control. I think the investing lessons I learned this year will prevent me from making as many of the same mistakes in the future. Thanks again for reading and feel free to reach out anytime. -Blair
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