At this time of year it’s nice to look back on the best investing picks we made during the year, but I like to keep myself humble and focus on my worst too.
That’s all I’ve got to show for my investment in Sirius Minerals (LSE: SXX) – part ownership of a big hole, which might turn out to be worth precisely nothing. As things are, it’s worth very little, and though I bought my shares at a significantly lower price than many, I’m still looking at an 80% loss. Thankfully, I knew it was risky and I only invested a small amount of money.
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With its vast potash deposits, I saw the company sitting on a hugely valuable asset, but the value of something like that when it’s still down in the earth is very different from its value when dug up and loaded into shipping containers.
I thought the difference in value would be plenty to get big investors ready to stump up the development cash needed, but sadly it hasn’t turned out that way.
How could you have avoided my mistake? Other than just never listening to me (which itself might be wise), the obvious answer is don’t buy jam-tomorrow companies that aren’t making money today.
In January, looking at the tie-up between Marks & Spencer and Ocado (LSE: OCDO), I saw no justification for the latter’s soaring share price, going as far as to suggest we could even see an Ocado share price crash in 2019.
That prediction was perhaps not quite as accurate as it might have been, as the Ocado share price is up 50% so far in 2019. What did I get wrong?
For one thing, at the start of the year I was still seeing Ocado as essentially just an online supermarket, while many investors had seen beyond that to the provider of automated warehousing and stock picking technology that is the Ocado Solutions division. And that shines a whole new light on the firm.
Being such an early mover, Ocado has become a one-stop shop for retailers wanting to set up or expand, and the latest deal with Japan’s Aeon is a great example.
I still think Ocado shares are too expensive, mind.
I cringe when I read what I wrote in June about Neil Woodford. I suggested that if you’re considering investing in Woodford Patient Capital Trust (LSE: WPCT), which was on a discount of 33% at the time, it should be based your trust in Woodford’s stock picking ability. And I said “I still think he’s very good at the job.” Ouch.
Since then, the Woodford Equity Income Fund has been closed, and Woodford has been sacked as the manager of Woodford Patient Capital. And the trust’s share price has fallen a further 43%.
The discount to net asset value (NAV) is up to 70% now, though NAV has been downgraded several times since then, and investors fear there will be more to come when the fund’s new managers take over and unwind the bulk of Woodford’s unquoted and illiquid positions.
The lesson? Don’t invest in falling stocks until their troubles are over and you see clear signs of recovery.