Most investors don’t like to discuss their blunders. I think it’s absolutely vital. Only by doing so do we become better, more informed stock pickers. That’s why, today, I’m not going to regale you with news of my winners over 2020. Instead, I’m going to talk about my biggest investing mistake of the year.
Step forward Carnival (LSE: CCL).
Sinking FTSE 100 stock
Now, you don’t need me to tell you that 2020 hasn’t been kind to the cruise operator. The arrival of the coronavirus decimated the industry as ships were quickly renamed ‘floating Petri dishes’ and passengers struggled to make it back to dry land before travel bans and lockdowns were enforced.
Naturally, Carnival’s share price sank like a stone. By mid-March, the FTSE 100 stock was more than 80% down on where it stood at the beginning of January. That’s the sort of drop you’d expect from high-risk penny picks, not an established top-tier tanker.
Unfortunately, the speed and severity of the coronavirus took me and, no doubt, many other investors by surprise. To make matter worse, I did nothing.
Wait a minute!
At this point, you might be wondering why I should be so bothered. After all, a truly Foolish investor buys shares with the intention of holding them for years. We’re business owners, not share price speculators.
Even so, as a shareholder, it’s vital to realise when an investment case has changed so much that a full recovery will take a very long time. For me, this was when Carnival was forced to go cap-in-hand to investors and raise an obscene amount of cash over the summer.
One must also consider the opportunity cost of not moving on. Other FTSE 100 stocks have done brilliantly since March’s market crash. Further down the market spectrum, some shares have surely made millionaires of early private investors.
So, I pulled my head out of the sand and took the loss. Belatedly.
Looking ahead
Would I be tempted to re-buy Carnival now that vaccines have been discovered and distributed? I don’t think so. While I remain positive on the cruise industry over the very long term (the growth opportunities in markets such as China are immense), the sheer amount of debt Carnival now has is very unappealing.
The possibility of legal action being taken against the company by disgruntled passengers can’t be ruled out either.
This all makes it unlikely the FTSE 100 company will pay dividends to holders before bookings fully recover. The latter could take many years. Even if it does reinstate cash returns, these will probably be very small. This is problematic since Carnival’s dividend stream was one of my main reasons for investing in the first place.
While sentiment should improve as global travel normalises in 2021 (we hope!), I also wonder if, after riding an initial wave of optimism, the £12bn-cap’s share price could quickly lose momentum.
Count my blessings
Thankfully, the rest of my portfolio has made up for my loss on Carnival, and then some. What’s more, I thankfully refrained from throwing good money after bad.
Again, ending on a philosophical note, my time with Carnival has reinforced the idea that occasional losses are inevitable. It’s just part of the process of becoming a better active investor.
Hopefully, I’ll avoid another such loss in 2021.
