I’ve bought a lot of stocks that lost me money
Here are 10 memorable failures and the key lesson I learned from each:
Here are 10 memorable failures and the key lesson I learned from each:
1/ IBM - $IBM
Remember when Warren Buffett bet big on IBM?
I did too.
I set up a bullish options position on $IBM at $200 because it was:
✅Cheap
✅Big dividend
✅Had Buffett’s approval
Remember when Warren Buffett bet big on IBM?
I did too.
I set up a bullish options position on $IBM at $200 because it was:
✅Cheap
✅Big dividend
✅Had Buffett’s approval
The stock proceeded to go down, down, down….
Why? Its core business was being disrupted the cloud.
I ended up losing a bundle.
Lesson: “Cheap” stocks can get cheaper if the company’s moat is under attack
Why? Its core business was being disrupted the cloud.
I ended up losing a bundle.
Lesson: “Cheap” stocks can get cheaper if the company’s moat is under attack
2/ Whole Foods — $WFM
Whole Foods was a fantastic investment for years.
Founder-led, huge growth, great brand — TONS to like.
How could I lose money on Whole Foods?
I bought in at the peak valuation…
Whole Foods was a fantastic investment for years.
Founder-led, huge growth, great brand — TONS to like.
How could I lose money on Whole Foods?
I bought in at the peak valuation…
After my purchase, Walmart, Target, and everyone else started taking organic seriously
Consumers started buying organics elsewhere.
Growth slowed and its stock got crushed
I lost money, even though it got bought out by $AMZN
Lesson: Pay attention to the competition
Consumers started buying organics elsewhere.
Growth slowed and its stock got crushed
I lost money, even though it got bought out by $AMZN
Lesson: Pay attention to the competition
3/ Portfolio Recovery - $PRAA
PRAA is focused on debt collection.
Founder-run, profitable, high growth, and a 10-bagger BEFORE I got in
Lots to like and I thought the high-growth was sustainable…
PRAA is focused on debt collection.
Founder-run, profitable, high growth, and a 10-bagger BEFORE I got in
Lots to like and I thought the high-growth was sustainable…
I was wrong.
PRAA depended on the continual availability of new, cheap debt, which was a factor that was outside of management’s control.
Growth slowed to a crawl and the stock fell.
Lesson: Be wary of companies who rely on outside forces for success
PRAA depended on the continual availability of new, cheap debt, which was a factor that was outside of management’s control.
Growth slowed to a crawl and the stock fell.
Lesson: Be wary of companies who rely on outside forces for success
4/ CorEnergy - $CORR
CORR is an energy finance company
They bought mission-critical assets from energy companies and then leased them back. Profits were sent to shareholders as big dividends.
No operating risk, huge yield, and attractively priced
How could I lose?
CORR is an energy finance company
They bought mission-critical assets from energy companies and then leased them back. Profits were sent to shareholders as big dividends.
No operating risk, huge yield, and attractively priced
How could I lose?
Well, I lost
Why? The business model fell apart when energy prices collapsed
CorEnergy’s CUSTOMERS got crushed. Wall Street crushed CorEnergy’s stock, too.
Lesson: A company’s financials are only as healthy as its customers
Why? The business model fell apart when energy prices collapsed
CorEnergy’s CUSTOMERS got crushed. Wall Street crushed CorEnergy’s stock, too.
Lesson: A company’s financials are only as healthy as its customers
5/ GrubHub - $GRUB
Food delivery is in a bull market and GrubHub was the market leader
Founder-led, profitable, high growth, network effect moat (so I thought)
I paid up to become a shareholder
Food delivery is in a bull market and GrubHub was the market leader
Founder-led, profitable, high growth, network effect moat (so I thought)
I paid up to become a shareholder
It turns out that GrubHub’s moat wasn’t wide at all
UberEats and DoorDash started to eat the company’s lunch
GrubHub had to spend big on marketing to defend its turf, causing profits to go negative.
I sold at a loss
Lesson: Not all network effects are created equally
UberEats and DoorDash started to eat the company’s lunch
GrubHub had to spend big on marketing to defend its turf, causing profits to go negative.
I sold at a loss
Lesson: Not all network effects are created equally
6/ KinderMorgan - $KMI
KMI is a pipeline company that has take-or-pay contracts. They made money by moving oil/gas and were insulated from the energy price swings (in theory)
No operating risk, founder-led, big yield, growth, and cheap!
I made it my largest position
KMI is a pipeline company that has take-or-pay contracts. They made money by moving oil/gas and were insulated from the energy price swings (in theory)
No operating risk, founder-led, big yield, growth, and cheap!
I made it my largest position
What I missed: Take or pay contracts don’t matter if your CUSTOMERS can’t pay their bills
KinderMorgan’s growth came to a halt and its stock got crushed
It was my biggest dollar loss ever
Lesson: Avoid companies that rely on commodity prices for success
KinderMorgan’s growth came to a halt and its stock got crushed
It was my biggest dollar loss ever
Lesson: Avoid companies that rely on commodity prices for success
7/ Under Armour - $UA
UA checked ALL of the boxes…
✅ High growth?
✅ Profits?
✅ Great brand?
✅ Huge TAM?
✅ Founder led?
I really thought it was the next Nike
UA checked ALL of the boxes…
✅ High growth?
✅ Profits?
✅ Great brand?
✅ Huge TAM?
✅ Founder led?
I really thought it was the next Nike
It wasn’t
Kevin Plank (CEO/Founder) became distracted.
The culture went downhill and the company chased growth by selling it at a discount. That killed the brand allure.
Lesson: If the moat is brand, and management starts to dilute it, exit!
Kevin Plank (CEO/Founder) became distracted.
The culture went downhill and the company chased growth by selling it at a discount. That killed the brand allure.
Lesson: If the moat is brand, and management starts to dilute it, exit!
8/ Gilead Sciences - $GILD
I bought Gilead Sciences AFTER it produced an amazing cure for Hepatitis C
Revenue + profits were exploding, yet it was only trading for 11x earnings
I figured it was a high-growth company trading cheap!
I bought Gilead Sciences AFTER it produced an amazing cure for Hepatitis C
Revenue + profits were exploding, yet it was only trading for 11x earnings
I figured it was a high-growth company trading cheap!
Well, I missed WHY it was trading cheap
Revenue from its Hepatitis C business product quickly dropped as competition appeared
The market understood this. I didn’t.
Lesson: If a stock looks cheap, it might be because profit growth is about to disappear.
Revenue from its Hepatitis C business product quickly dropped as competition appeared
The market understood this. I didn’t.
Lesson: If a stock looks cheap, it might be because profit growth is about to disappear.
9/ RPX Corp - $RPXC
RPX bought patents and then sold them as a subscription service
It was an innovative business model and had lots of big tech companies as customers
It was growing fast and a new way to invest in intellectual property.
I bought it soon after the IPO
RPX bought patents and then sold them as a subscription service
It was an innovative business model and had lots of big tech companies as customers
It was growing fast and a new way to invest in intellectual property.
I bought it soon after the IPO
Soon after I bought it growth slowed to a crawl
Why? The company had already captured the lions’ share of its market opportunity BEFORE coming public
No growth = the stock fell hard
Lesson: Companies choose when they IPO. Don’t assume that the high growth is here to stay
Why? The company had already captured the lions’ share of its market opportunity BEFORE coming public
No growth = the stock fell hard
Lesson: Companies choose when they IPO. Don’t assume that the high growth is here to stay
10/ 3D System - $DDD
This was a top dog & first mover in 3D printing
In the early 2010s, 3D printing was all the rage, and this company’s business & stock were doing incredibly well
I bought into the hype
This was a top dog & first mover in 3D printing
In the early 2010s, 3D printing was all the rage, and this company’s business & stock were doing incredibly well
I bought into the hype
The bubble soon burst
3D System’s growth slowed to a crawl and its stock went down, down, down.
I bought into the hype cycle and ended up losing badly.
Lesson: The hype cycle is real. Ignore it at your own peril.
3D System’s growth slowed to a crawl and its stock went down, down, down.
I bought into the hype cycle and ended up losing badly.
Lesson: The hype cycle is real. Ignore it at your own peril.
The good news:
My #1 biggest winner of all time — $MELI — has covered the losses of ALL of these losers COMBINED
That’s how investing works!
You just need a few big winners to do very, very well
My #1 biggest winner of all time — $MELI — has covered the losses of ALL of these losers COMBINED
That’s how investing works!
You just need a few big winners to do very, very well
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Summary:
1: “Cheap” stocks can get cheaper
2: Watch the competition
3: Avoid companies who rely on outside forces
4: Companies are only as healthy as their customers
5: Not all network effects are created equally
1: “Cheap” stocks can get cheaper
2: Watch the competition
3: Avoid companies who rely on outside forces
4: Companies are only as healthy as their customers
5: Not all network effects are created equally
6: Avoid commodity businesses
7: Watch for brand dilution
8: Cheap isn’t automatic buy
9: Companies choose when they IPO
10: Study the hype cycle
7: Watch for brand dilution
8: Cheap isn’t automatic buy
9: Companies choose when they IPO
10: Study the hype cycle
All of these failures have informed the shaping of my investing checklist, especially the risks section (which I call "The Gauntlet")
You can download a free copy of it here: gum.co/zWXye
You can download a free copy of it here: gum.co/zWXye
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