Recently, I have the fortunes to meet Mr Royston Yang, Financial Analyst at EFA Group, the famous blogger of http://sgmusicwhiz.blogspot.sg/ over coffee where he shared with me valuable insights and wisdom of how he approached Value investing.
One of the good practice that he did on his learning journey is to blog about the mistakes that he made along the way. It is very easy to brag about one's success to make one look good, but it is the mistakes that one makes and the courage to own up that separates an honest person from someone who is superficial.
Although this is not my first post about my mistakes (check out My Investment Journey), the posts in this series will specifically be written with regards to my stock investment journey. This will serve as a reminder to myself not to repeat such mistakes.
In the recent market crash that occurred in August 2015 when the Chinese government suddenly allowed the RMB to devalue freely, one of my largest speculative positions took a big hit. That position continued to spiral downwards and has been causing me anxiety. The following passage will describe my mistake details.
If you have read my post titled: Diamond in the Rough, you would know that I have very high regards for this company called Sarine Technologies [U77]. In the conclusion of my post, I stated that my valuation of this company indicated that the current price is overvalued. But I also added that those who wish to speculate on the chance that the shares will bounce back after suddenly dipping from a high of $3.23 to a low of $2.
Being tempted by the possibility that the share price would bounce back, I decided to take a position in the stock.
A little background on how I place my trades:
In order to maximise the trading commission that I have to pay, I have made it a rule for myself to not make any transaction that is less than $9,000 in value. This is because, the commission charged by most internet broker platform is 0.00275% of the transaction value or $25, whichever is higher. If I make any trade that is less than $9,000 in value, I would still have to pay $25, thereby increasing the per share cost. This cost might seem negligible to you but over time, it will erode the overall gain that I could have realised.
I would never purchase shares at the current asking price, instead, I would place a buy order at a price lower than the current bid right before the market opens and wait for the orders to be filled by sudden sell offs.
Mistake 1
It was ex-dividend day for the share and the price dropped to factor for the dividend paid out. The buy order that I have placed was for the price that took into account for the dividend. The moment the market opened, my order was filled because I placed the buy order too high. Within the day, the price of the share dropped further. If I had done my homework properly, I could have purchased the stock at a much lower price. I bought 5000 shares for $2.05 when I could have gotten it at below $2.
Mistake 2
Because the share price kept falling, I panicked and wanted to average down my cost. I placed another buy order for 5000 shares at $2. In a single day, I purchased $20,300 worth of Sarine Technologies shares because I did not do my research properly and because I panicked.
Mistake 3
The above mistakes could have been triumphs if not for my greed. As I speculated, Sarine Technology's share price rebounded after 2 months from my purchase. From a low of $1.95, it went back up to $2.35 due to some positive news released by the company. However, I told myself that I would only sell if the price went up to $2.50. It was a big mistake. I should had heeded my own calculations which told me that the share price was already overvalued, and exited the moment I was ahead. I could have netted a gain of $3,000 in 2 months.
But because of the deterioration in global market condition in August, the share price started free falling. Sarine Technology is trading at $1.32 as of this post.
Mistake 4
As the share price was falling, I made the mistake of trying to average out the cost by buying too pre-maturely instead of waiting until the share price stabilized. When I could have averaged the cost of my overall purchase from $2.03 to $1.70, I used my capital to only lower the average cost to $1.90.
Mistake 5
Although buying this company presented an opportunity to make a quick profit, it was against my established strategy of only buying a share if it is trading below the intrinsic value that I have calculated. The mistakes made that caused me anxiety could have been averted if I had the discipline to follow my strategy.
