Over the last days, I was thinking about some personal stock investments that I either sold too early or even never managend to initiate at all – because I was waiting for a correction which never came. To the contrary, I have to really think longer and more intense about realized losses, just to name a few – not because there were none (there were), but because I threw them out of my mind.

Summary and key takeaways from today’s Weekly
– In a prior article, I compared the phenomenon of selling winners too early, while holding on to losers for too long. Today, I am writing about suffered, real losses compared to not realized gains due to not being invested at all.
– My personal experience is that realized losses can be shaken off easily. You forget about them earlier than you think. But take your lessons learnt!
– What really hurts are missed gains, even more so if sold too early. But these are those investments that can lift a whole portfolio into new dimensions.

Everyone likely experienced at least a few such situations from personal investments.

I mean both – realized losses, but also and even more so those gains that were never made, because either one nervously sold their positions way too early, just booking prematurely a comparatively small profit, only to watch the stock climbing further, or never bought a stake at all, waiting for “the right price” that never came.

Sounds familiar to you?

These thoughts suddenly came to my mind over the last weekend and did not make me rest for a while. So I decided to make a Weekly out of them where I am comparing suffered, realized losses with these famous missed opportunities, where the stock price ran away, leaving me behind.

This not only helps me personally to better digest these thoughts (“what is written down, can be pulled from my brain’s RAM”), but there are also pretty valuable lessons I want to share with my readers.

Suffice to say that I experienced both scenarios several times.

And this is what I want to discuss today – first going into the psychological aspect and then showing you also real examples from both camps that I had personally.

So today, you rather won’t get any new investment ideas from me (at least that’s not my goal). But these “investing mindset articles”, as I like to call them, that I write form time to time, can be even more valuable, as I am a firm believer in the approach of learning from mistakes.

The good and valuable thing is, you cannot only learn from personal mistakes, but also from mistakes that others already did before! So why not making use of it?

Though I am certainly not someone who is living in the past, being upset and regretting things I cannot change or influence anymore, believe me, from time to time it is worth it to take a step back from today’s chaos and reflecting on history.

In this Weekly, it is time to discuss again a mindset topic and to draw conclusions about what really counts in investing – mastering investment psychology.

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Some investment psychology

A very valuable lesson I had since I am an investor, was that investment decisions are influenced and investors manipulated by emotions. This is not a new, world-changing discovery I unexpectedly made, but it takes time to realize and understand this.

Hearing something and applying it to one’s personal portfolio is another pair of shoes.

For the purpose of this article, it is not important whether these influencing forces come from external sources like “news” or sprout intrinsically by fear or greed. Yet, all these emotions anesthetize your otherwise rational decisions or logical thought processes you usually have during your everyday life.

If something is hot, you rather won’t touch it with your hand. If there is high uncertainty, you will likely not gamble, but compare arguments and think things through to find the best solution. And then, there are these famous discounts that trigger people to buy more – with stocks it is rather the opposite for the majority.

These are all common problems we have one day or another.

While for most investors, though not logical if thought about for a while, it is common – from a psychological perspective – to be

• risk-averse with winners (selling them too early, taking small profits)
• but risk-seeking when under water (holding onto portfolio losers)

it would be wiser to do exactly the opposite.

Winners can run further, outbalancing even several losers for a good total return of your whole portfolio – if you let them. A stock that goes up by 300% or 4x will more than outweigh the losses from three positions that are all in the red by 50%.

Hard to believe, but that is pure basic mathematics.

Otherwise it is no wonder when a portfolio at some time starts to consist purely of losers when the winners get cut regularly.

The motivations behind the above are clear: Realizing gains, not to lose them again on one hand and not admitting a mistake while waiting in hope for a recovery to exit then at zero on the other.

Normally, one would laugh reading or hearing the above, because it defies logic.

But that is common investment behavior. You act not the same when you’re directly involved – but the good news is, by understanding these issues, you can learn from mistakes and improve your decision quality.

This is not a new realization that I suddenly had over the last days.

It is a topic that I already discussed in detail in an earlier Weekly last year, titled “Why you need to remove your portfolio losers regularly” – if you haven’t done, please read it.

It is one of my so far most important weekly issues.

You can read my older article about portfolio losers by clicking here.

But it is the starting block I want to build upon today.

Besides facing the situations above and destroying one’s overall portfolio performance with this toxic behavior – cutting winners prematurely and holding losers for too long – you can go one step further and also compare realized losses with unrealized gains that you could never make in the first place, because you weren’t invested.

Certainly a factual loss hurts more than missed fun?

I don’t know about you.

But for me, personally, the latter is something I think about way more often than the former. Above in the intro section I wrote that I am not living in the past and regretting things I cannot change anymore on a regular basis.

I am seeking chances.

While generally true, in this case I have to make an exception. Sometimes thoughts overcome me that let me think “what if had held onto this or that position?”.

However, I don’t have these retrospective feelings that suddenly overcome me with positions I sold at a loss – no matter the reason for the sell. Maybe even more surprisingly, no matter how high the loss was percentage-wise.

Surprising, isn’t it? How come losses stop hurting while non-losses suddenly do?

What could be a viable explanation?

Maybe it’s because I didn’t have any 100% loss position so far (and my aim is to extend this series into infinity). But not only once did I sell a loser with –50% or so, because the underlying investment thesis I had didn’t work out anymore.

Of course, with time I also learnt that losses need to be cut earlier, because it becomes disproportionately tougher and more unlikely to gain them back. A 20% loss requires just a gain of 25% of come back to zero. A 50% loss, however, already needs a double. Above that it becomes day-dreaming.

Seriously, I think it is because first I admit to myself that I made a mistake.

It is not something I am afraid off on a regular basis. Sometimes of course it takes longer before reality sets in for me. But when the odds are clearly against me, I have to look in the mirror. When there is no hiding and denying anymore and hope starts to be the main investment thesis, I start to think concretely about what went wrong, draw my conclusions and try to make it better next time.

I admit to myself that I obviously have been plain wrong and move on, looking for a better investment.

There can be many reasons for a failed investment.

Maybe the price I paid was too high. Or my assumptions about the future development of the underlying business were wrong. Growth could come in lower than I estimated. Also, the management could make silly decisions like announcing an expensive “diworsification” by acquiring a competitor or even entering a whole new business segment where they haven’t been active before.

It could also be a mix of many factors. It can be my fault or just bad luck due to external events I couldn’t influence myself.

In the end, when I seriously think about it – and this is what I intend to do – with time I managed to improve my skills in dissociating myself from those bad investments. I not only sell them, but for a last time I spent some time on digesting something that does not necessarily taste well at that moment.

But it brings me forward when the process is done.

I am convinced that the key here is to analyze seriously without lying to yourself what you did wrong – maybe you did nothing wrong at all, as it could have been an external factor that sabotaged your investment.

But my experience is that in most cases the investor was overoptimistic.

Anyway, this process – call it farewell, if you like – helps me to close these small chapters. As I like to draw something positive from most situations, in this case there was a learning effect.

And then, this loss stops annoying and hurting.

It dissipates.

With the positions I sold too early or never made it to start one, the picture is different.

From time to time I start thinking over and over again “why did I sell?” or “why did I not buy at a slightly higher price” as the upside was there in hindsight? We should differentiate here between those two.

I think the first – the premature sell – is something that is only one’s fault, because the position was already in the portfolio, likely already with a gain. There can be many reasons, but in my cases the valuations and maybe my too strict orientation on valuation numbers caused me to exit too early. This can even be right over the long-term, but it really hurts if you stand by watching stocks rising further.

In the next section, you will see one such an example and understand why.

Or in other words, the damage of not having lifted one’s portfolio way higher – this missed opportunity – although you already had your hands on it, does not leave you (or me) alone. While with a diversified – but not too much – portfolio, a 50% loss should not be life changing (but hurtful), a missed ten- or twenty-bagger definitely is!

Doing nothing often seems to be the right decision, at least concerning the winners of a portfolio.

Add to this what I touched upon briefly, above. One single big winner can lift the entire portfolio massively.

The other case – not managing to start a position – can be one’s fault or not. Some stocks always seem to be expensive.

If it is bad luck, leave it with this.

Obviously this investment didn’t fit to your investment style. Or you didn’t find it early enough. This can happen. Or maybe you already had a fully invested portfolio and there was nothing viable to sell – being it due to tax reasons or because there was no position clearly qualifying for a sale. This can happen.

But what is annoying is if you’re working with buying limits and / or are waiting for a certain price – but it does not come! In this case, it can also be bad luck. Or the price one was looking for was set too low. That can happen, too.

You see, I am more relaxed concerning this point. The reason is straightforward: Chances come and go. Just turn around rock after rock and you’ll find a new chance sooner or later – this is what Peter Lynch said and practiced.

The key is, if you have a big fish, keep it, if the underlying thesis didn’t change.

Now, I want to show you some examples – two realized losses that were high percentage-wise, but where I drew my conclusions from. And two sold-to-early opportunities – that revisit me from time to time.

My real cases and what to learn from them

First the realized losses.

During the work from home and video conferencing boom, I bought shares of a Norwegian company called pexip (ISIN: NO0010840507, Ticker: PEXIP). Maybe many won’t know it by its name, but this is the company that is offering video conferencing solutions to governments and related supra-national entities.

Every time you see somewhere on TV or on a screenshot in a newspaper (or online) a picture where politicians are conferencing, the provider likely is pexip.

If you see pictures like this, you should know what I am talking about.

My investment thesis was that more of such software will be used and that the advantage of pexip was data protection. Zoom has its issues or let’s call it skeptical non-users. pexip had a chance to close this gap.

However, the company massively invested into growth and was run non-profitably. Somewhere in the mid-2020s, they wanted to be profitable on an adjusted basis, but who knows if it ever happens.

And then there is this “adjusted” thing that I don’t like…

I threw in the towel at a 37% loss.

After my sale, the stock dropped another 80% or so until it reached its bottom (measured by eye). It still is sitting more than 50% below my selling price.

Not only was this company cash-burning on purpose, also the perspective for me was becoming unclear. I didn’t want to wait until 2025 to then maybe have a company reaching zero. I guess I jumped on a story that was not supported by the financials.

My learnings have been:

• not to chase hot stocks fueled mainly by hope
• to be skeptical if a company overemphasizes adjusted numbers
• look for profitable companies to decrease risk
• what has fallen massively already, can further fall even more massively
• i don’t like too much involvement of governments

My second example is Bausch Health (ISIN: CA0717341071, Ticker: BHC), a company that I already presented as a big mistake in my older article, linked in the upper part of this Weekly.

To sum up my 46% loss: It was a special situation with two coming spin-offs that were about to unlock hidden value and help the mother company, BHC, to deleverage.

BHC was heavily indebted with somewhere 7x its operating results in net debt.

My key message: Stay away from highly indebted companies!

And, even if there are hidden values somewhere – there is no guarantee that they can be lifted successfully, at all!

But both examples are not having any negative effect on me. I like to use them as examples and only to look back at what went wrong.

However, they do not hurt me. I closed these chapters for good.

Next, let’s have a look at two winners which I sold too early.

The first one is Triton International (ISIN: BMG9078F1077, Ticker: TRTN).

Triton is the world leader in container leasing. Next time a container-loaded ship or truck passes you, feel free to have a look whether there is a Triton container onboarded.

This is a company I have been having on my watchlist for a long time. I have monitored it, waiting for an attractive entry point to write a research report about it for my Premium Members.

But, bad luck. Last week it was announced that Triton will be acquired:

It gets even worse.

I had some shares of Triton that I bought in 2019 – I think this was also the time I got to know this company and started analyzing it. Then came the 2020 panic and Triton being a not lowly leveraged company facing all this uncertainty with the lockdowns, caused me to overreact and sell my shares.

I took home a small loss, it was slightly better after dividends. Taking all together, somewhere around –10% or so.

Not only did I sell at a small loss.

The best thing would have been to do nothing – or to buy more.

Look where it has run since then.

Plus, my dividend yield on cost would have been around 10% by now…

A missed total return of more than 200%…

But now comes what’s really dogging me until today.

It is Tesla (ISIN: US88160R1014, Ticker: TSLA).

Now, I am neither invested anymore, nor am I considering it, because it is hyped.

When I bought stocks, it was hated. It was really hated. But it had a first mover advantage in technology, efficiency and charging stations. Competition was barely producing any BEVs. Plus, the valuation was way more reasonable.

We have to consider the two stock splits here, a 5:1 and a 3:1 – making it 15:1. I bought – and sold – before both splits. Today, the stock is at around 180 USD (the high was around 400 USD). Without the splits, the stocks would be at 2.700 USD now (6.000 USD at the top).

I bought it at split-adjusted around 200 USD on average in two tranches back then (ca. 13–14 USD now), happily selling it with a 100% gain.

After my gain, it rose another ca. 15x to the top.

It would have been still a nice ca. 7x to where the stock currently is – had I just done nothing.

From my buying price, it could have been nearly a thirty-bagger to the top (where I likely would not have sold, neither before nor thereafter, as no one hits the optimal points).

Shoulda, woulda, coulda…

Here’s the chart:

I think you now understand…

But factually, it was the Triton takeover announced last week, that set my thoughts in motion and that led to this article.

I hope that it will be helpful for your future investment decisions.

A promising investment case is my “biotech stock to own for the 2020s” – which I featured in my March 2023 research report, exclusively for my premium members.

Although I am not expecting a thirty-bagger, this company has the potential to multiply several times – purely from its organic development. This is an advantage compared to the Big Pharma companies that are forced to do expensive M&A, to replenish their pipelines.

My chosen company does not have to.

It also has some 30% of its market cap in net cash and is founder-led. Of course, this company already has an established profitable business.

Is this something to complain about?

Conclusion

In a prior article, I compared the phenomenon of selling winners too early, while holding on to losers for too long. Today, I am writing about suffered, real losses compared to not realized gains due to not being invested at all.

My personal experience is that realized losses can be shaken off easily. You forget about them earlier than you think. But take your lessons learnt!

What really hurts are missed gains, even more so if sold too early. But these are those investments that can lift a whole portfolio into new dimensions.

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