This post is written as a comment to the excellent post available here:- http://kiraninvestsandlearns.wordpress.com/2012/02/20/investing-mistake-and-a-list-of-value-investors/
Let me add a few points on this particular example, as I had a very very similar experience with PI. I studied PI, liked what I saw and got it. I followed it for a while and after this quarters results, I got really really bugged and sold nearly 80-90% of my holding (still holding a small fraction to keep it on my radar).
Your points about being able to value a company or business is critical to an investors success. That is one reaso why Buffet keeps harping on the "circle of competence". Pi, as a business model, is really good. It is in 2 distinctly growing markets which has a significant barrier to entry. The wildcard on this one is that the management seems to lack either integrity or brains - both of which are detrimental to a minority investor's wealth!!
Let me give two more examples from my investments, separated by 10 years!
Example 1 - In 2000, I bought Dr.Morepen (now Morepen Lab) at about Rs 100 (or thereabouts, cant remember exactly). After a few quarters, I figured that the company's powerpoint presentations and delivered results were poles apart and got rid of the stock at a small loss. I think I lost 2-3Rs per share. I checked the price today and it is Rs 3.90, so I saved about 90% capital loss in a 10 year period, in addition to the opportunity cost.
Example 2- Last year a fellow investor gave a very strong suggestion to buy Andhra Sugar. I figured that the business may do well, but was beyond my circle of competence as I had no idea what I had to do to track caustic soda and sugar prices.
It is absolutely critical to have an investment framework that one stocks to. Keep it written down so that you can go through it before you click the Buy button. Also, in my opinion, it is critical to keep a margin of error. Sir John Templeton had approximately 6 out of 10 profitable investments, and he is in the Hall of Fame of investors! So, we should be planning for a poorer average.
I am a mid and small cap investor and for someone like me, I know I will make my share of mistakes. So, what I try to relentlessly focus on is make my winners big and cut out my mistakes as quickly and ruthlessly as possible.
Let me add a few points on this particular example, as I had a very very similar experience with PI. I studied PI, liked what I saw and got it. I followed it for a while and after this quarters results, I got really really bugged and sold nearly 80-90% of my holding (still holding a small fraction to keep it on my radar).
Your points about being able to value a company or business is critical to an investors success. That is one reaso why Buffet keeps harping on the "circle of competence". Pi, as a business model, is really good. It is in 2 distinctly growing markets which has a significant barrier to entry. The wildcard on this one is that the management seems to lack either integrity or brains - both of which are detrimental to a minority investor's wealth!!
Let me give two more examples from my investments, separated by 10 years!
Example 1 - In 2000, I bought Dr.Morepen (now Morepen Lab) at about Rs 100 (or thereabouts, cant remember exactly). After a few quarters, I figured that the company's powerpoint presentations and delivered results were poles apart and got rid of the stock at a small loss. I think I lost 2-3Rs per share. I checked the price today and it is Rs 3.90, so I saved about 90% capital loss in a 10 year period, in addition to the opportunity cost.
Example 2- Last year a fellow investor gave a very strong suggestion to buy Andhra Sugar. I figured that the business may do well, but was beyond my circle of competence as I had no idea what I had to do to track caustic soda and sugar prices.
It is absolutely critical to have an investment framework that one stocks to. Keep it written down so that you can go through it before you click the Buy button. Also, in my opinion, it is critical to keep a margin of error. Sir John Templeton had approximately 6 out of 10 profitable investments, and he is in the Hall of Fame of investors! So, we should be planning for a poorer average.
I am a mid and small cap investor and for someone like me, I know I will make my share of mistakes. So, what I try to relentlessly focus on is make my winners big and cut out my mistakes as quickly and ruthlessly as possible.
No comments:
Post a Comment