Bad investments don’t make you a bad investor. We often learn the most from our worst investments. The trouble comes when you don’t learn from your mistake. Take a beat and look through your holdings. Why is that investment a loser so far? Is the underperformance a temporary setback or is it more pervasive to the company as a whole? Most importantly, ask yourself: Am I making this mistake elsewhere in my portfolio?

For example, a long term loser I’ve had on my scorecard is Ford (NYSE: F). Over the years I’ve owned it, Ford is down around 34% compared to the market’s gain of 91% (including dividends). I initially invested in Ford as a potential long-term value play based on a successful turn around. In fact, over the years, I continued to invest more and more of my capital into the Blue Oval in a race to the bottom. Since then, I’ve checked through my portfolio for similar mistakes: Are any more of my investments based solely on a turnaround? Am I over exposed to the auto sector? Is there anywhere else that my capital may be better deployed?

3. Don’t double down

If a company doesn’t pass your assessment, there’s no need to sell out — but don’t add more. It can be painful to throw in the towel on an investment, but try to separate emotion out as much as you can. Many investors feel a need to double down on a losing stock, but you should resist this urge. Many times, a correction in a company’s price is temporary, but a long term pattern of disappointment is different. When a company is fundamentally flawed, its returns are often not worth the time it takes to turn around. Don’t make the mistake of throwing more good money after bad.

Source link


Please enter your comment!
Please enter your name here