- August 3, 2009: I had recently opened a brokerage account in UBS AG (UBS). They charged SFr 40 for buys of up to SFr 4,000 and then they charged SFr 80 up to SFr 80,000 and so on. As I did not want to pay too much brokerage, I bought SFr 4,000 worth of CS at a price of SFr 52 per share. I bought CS because it had paid a dividend on SFr 2 in 2009, was arguably the best bank in Switzerland in terms of amount of risk they were facing when the crisis came. At the worst of the crisis in terms of price, CS traded at SFr 24, while the book value of SFr 30. My reasoning was that being a good bank it will at some point go back up to SFr 95 (the price it was trading at in 2008) and the dividend yield which is 4%, will be paying me to wait.
- I made no effort to look at the business CS was in. I ignored comments from my colleagues who said that the stock is quite overvalued because it is going to face major legal challenges from the US and the customers will run from Swiss banks. This will reduce the amount of deposits they have and they will be earning much less.
- I also ignored the exorbitant pay received by the CEO Brady Dougan in 2009. He was paid SFr 19.2 million in salary and SFr 70 million from a 2004 share plan which he immediately sold on the open market.
- After briefly peaking at SFr 60, CS troughed at SFr 44 and I bought some again. I was steadfast in my belief that it was a good company and I was ignoring the crowd and buying more. I bought again SFr 4,000 worth of shares.
- After peaking at SFr 54, CS plunged and I bought another SFr 4,000 worth of shares at SFr 30. I was holding 296 shares with an average price of SFr 41 now. Meanwhile CS started trading around SFr 19 in Oct 2011.
Meanwhile, I started looking at my investments in more detail. Researching stocks, buying only when the stock offered a margin of safety and passing on things I could not value. I also kept reading books, blogs, stock pitches and reading/listening to the famous investors. Some of the quotes which deeply affected me were
If you understand the business, you don’t need to own very many of them. If you have a harem of 40 women, you never get to know any of them very well.
Everybody’s got a different circle of competence. The important thing is not how big the circle is. The important thing is staying inside the circle.
If you don’t feel comfortable owning something for 10 years, then don’t own it for 10 minutes.
- Warren Buffet
I more or less made all the investing mistakes one can make in a very short period of time (they are covered here in detail: 2009, 2010, 2011). Thankfully, I did not lose a lot of money, which is my only consolation. And I am trying to do what Charlie Munger said some time back
Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day. At the end of the day – if you live long enough – most people get what they deserve.
Trying to right the ship
The big money is not in the buying and selling, but in the waiting.
- Jesse Livermore
When the market tanked in July-Oct 2011, I was sorely under-prepared. I was worse than all in. I had used the cheap financing by Interactive Brokers and was on margin of SFr 6,000 on a portfolio of size SFr 50,000. My portfolio lost 50% of the value and was standing at SFr 25,000 at one point and I could not get any new money into the market when stocks were selling so cheap. My largest holdings from the time I was stupider were Bank Of America ($6000@$12.5/share - bought on expert speak), HPQ ($5000@$40/share - bought being a contrarian after Hurd fiasco), and BBY ($4000@$30/share - bought being a contrarian after finding it cheap on DCF valuation, ignoring the problems with the business). All these were down more than 50% at one point (except BBY which was down 30%).
Owning these stocks as a large percentage of portfolio already, I in good sense did not want to buy more because of the risk. This decision was also helped by the fact that I was in debt/margin. I used my saving during this time to repay the debt but by that time the market had already recovered and I missed the chance of owning Novarits (NVS) at SFr 40, Holcim (HCMLF) at SFr 44, Roche (RHHBY) at SFr 125 and many many more such deals. The opportunity cost was tremendous.
After the market recovered I started selling securities which I did not understand or was not comfortable with. This meant sometimes selling at big losses. Some of the businesses like Posco (PKX), Ternium (TX), Ampco-Pittsburgh (AP) and Tower Group (TWGP), I sold because I got them at a price which did not give me sufficient margin of safety. The positions were too small to have an effect on my portfolio overall and it would have been tiring to keep track of so many picks.
As you see, I have let go of Credit Suisse (CS) at a large loss. But the opportunity cost of that money sitting in this stock and I not knowing what to do with it if it tanks again, was too much for me. I decided that it was much better for me and my portfolio to have the cash and wait until the opportunity presents itself, as Warren Buffet says
The most important thing for a hitter is to wait for the right pitch and thats the exact philosophy I have about investing. Wait for the right deal … and it will come. Its the key to investing.
My goal for the rest of the year is to find good businesses which will get me out of the hole I have dug myself into.