Today, I’m writing about one of my (former) best stock ideas which didn’t play out as initially thought. Besides describing the case and the reason that led me to throw in the towel, I also want to use it to show why it’s important to regularly go over one’s portfolio and to cut the weeds.
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This is a topic I’ve wanted to write about for a while. Those stock pickers who decide not to migrate to the camp of chartists, tee leaf readers or other witchcrafts, will likely join the group of value investors. In this context, the name of Warren Buffett must not miss. Many investors claim to emulate his strategy, others try to seek inspiration which stocks to buy. Today, I will show that both are delusions.
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As 2023 is coming to an end and with the calmer Christmas holidays approaching, I thought it would be a good occasion to take a look back on the passing year. What topics did I write about, where did I nail it and where have I been completely wrong? Going deeply inside myself, what am I taking home?
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Tech stocks, “Big Tech” or the “Magnificent Seven” – the same the names get more stupid, the riskier investing in their stocks becomes. Many do not see it this way. For the bona fide investor these are core investments of their portfolios with great future potential. However, a critical look back at history tells us that the risk / reward ratio is not favorable. Size does not equal safety.
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No matter whether experienced or not, almost every investor is on the hunt for undervalued stocks to make money. What could be less welcome than a stock which has fallen in price and become cheaper? The problem is, “cheap” is not automatically “cheap”. In fact, buying cheap can become a costly mistake. I see a strict urgency to clean up with this dangerous myth that a stock only has to fall enough to become attractive.
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There are many rules of thumb and well-intentioned advice for younger investors. One such “rule” says that it is better to buy stocks of older and proven companies. While I do not disagree with this on an isolated basis, I am missing the second part, namely that every business has a certain life expectancy. There comes inevitably a time for every company to either step into the background or to disappear altogether. History is full of examples.
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In times of economic or political stress it is always good to have defensive, iconic consumer stocks in the portfolio – at least this “common wisdom” applied in the past. However, during the current market decline which in technical terms was not even a correction (the peak to trough drop was less than 10%), the overall sentiment already showed first signs of a panic. Not only that, the highly praised “defensive” stocks actually lost disproportionately. How come? And was it foreseeable?
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Especially stock market beginners get in touch early with ETFs and / or dividend investing, in part thanks to the respective communities and influencing faces. You can see both strategies separately or also in combination. However, a common thing I see e.g. on Twitter / X and YouTube is that these people promote them as being bullet-proof, save strategies. As a risk-focussed investor myself, I am clearly missing this crucial element.
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With the turn of my blog into its second year, I first started to publicly present the performance of my stock ideas that are exclusive to my Premium / Premium PLUS members. As it stands, on average my picks have been beating the market. Now, I also want to explain more in-depth the recipe behind how I pick those ideas – my analysis approach. I am transparent in what I do. Here’s my concept I developed over the years.
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During the last one and a half decades, it nearly didn’t matter to look at a company’s balance sheet. The reason was quasi non-existent interest rates – a historically unprecedented scenario, not only for the younger generation. Hence, it is no wonder that those who held too much cash in their books even got punished by not receiving any income on their deposits. On the other hand, debt-hungry entities got subsidized. However, the winds have changed. Interest rates are up dramatically. What are the consequences?
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