Thread by @MGinvestor

THREAD 1/n
No one likes talking about their losses. It makes us uncomfortable. We like to inflate our gains & deflate our losses. Hide them. Mention them in passing only. Hope no one notices them.

You’re going to enjoy this. Please share so others can learn from my mistakes 🙂

2/n The more winners we can display up front the less losers become apparent at the back. Charlie Munger has said “I like people admitting they were complete horses’ asses. I know I’ll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn.”

3/n Therefore, I wanted to revisit some of my key losers so I can share my experience, thoughts and biases out in the open. I have mentioned them before but not as one thread and in such detail. I’ll try and make the lessons clear and from some of my notes. This will be brutal.

4/n First up #DSG I’ve screwed up twice on this one. Once I had a -28% loss & I didn’t learn my mistake the first time around. I guess I needed the market to give my money back(!) I needed another -15% loss to prove that divorce is a hard thing.

5/n If you didn’t check anything else have a look at #DSG chart since listing. Without going into a tangent, some businesses are listed for the benefit of other than the shareholder. I’m not saying it isn’t a good business.

6/n Simply put; you would have made nothing since #DSG was listed in 2006. When a company uses the word ‘transformational’ it’s a euphemism for shareholders losing a lot of money: rapidly. It is a dreaded, dirty word that should petrify and make you vomit. Hope thats clear 🙂

7/n Second one, #IMM. What a dumb and embarrassing decision this was. Another one where I lost money twice! Will I ever learn? Going from a +145% profit to a -85% loss within 24 hours sums up the shock that this was.

8/n I knew #IMM was a binary bet and in hindsight that should never be more than 1% of a portfolio (think it was ~3%). I had so many signs that I just refused to follow; FOMO, trusting management too much, getting sucked into the story, trying to get rich quick, etc.

9/n Third #BYOT – This has had a history of disappointments and value destruction. I made a -24% loss. Why did I get into it? I seem to have a habit of rushing to get into something before it can prove itself. Nothing wrong with that with the caveat that the position size...

10/n …should reflect it. If you buy something, you will monitor it closer than if it was on the WL. Therefore, if you’re going to buy something speculative let it be less than 0.5% of portfolio and then add slowly once it delivers.

11/n This will mean that you’ll be adding at higher prices. But, ask yourself, would you rather buy heavily into something speculative and lose 25% or buy some crumbs first & add when it’s proven by some execution at 25% higher? Hopefully you see the rational answer is the latter

12/n Fourth #FDBK – Loss of -27% I wanted to mention this one because it is such a cr** company that you have to beg the question, why would you buy it? Honestly, it was a boredom trade. I was bored, had cash on the side, lowered my selection criteria and took the trade.

13/n Always feels good pressing the buy button doesn’t it? I mean who wants to go through painstaking research? Better to press that button, get the dopamine kick and move on until you need another fix. Well losses are what usually happens when you do that!

14/n What have I learnt from my losses? That I’ll continue to make them. Warren Buffett has said that the key to success is emotional stability. I’m here to tell you that’s easier said than done. Look at what my role model Druckenmiller said:

15/n “You asked me what I learned. I didn’t learn anything. I already knew that I wasn’t supposed to do that. I was just an emotional basket case and couldn’t help myself. So, maybe I learned not to do it again. But I already knew that.” If such a skilled investor with an…

16/n …envious record is saying that, what chance do we have? If you were in a room full of people and you said “90% of people lose money trading, who thinks they’re in the other 10%?” Don’t be surprised if most of the hands shoot up. Heck, I’d put mine up too.

17/n So what can we do about it? Learn about your biases, your emotional state, have a checklist when buying asking qualitative Qs like “am I buying this on impulse” “have I had enough sleep” “am I following my research or my gut” "what can go wrong? and then what else?" etc

18/n It’s a tough game. Just a reminder: In the current bull market, picking any share almost guarantees success but it was less than 6 months ago when we had a mini heart attack. Not many wanted to commit funds when things were on sale. But we’ve forgotten that. Conveniently.

19/END Think about this: the stock market is the only place where people run out of the store when sales are on. The same people are perfectly OK saying to cashier when there’s no sale: “I know it’s real price is £2 but can I pay you £3 cos I really want it?” Some lessons here 🙂