Earlier in the week, I highlighted some of my top share tips in 2019. There were some beauties in there including JD Sports Fashion, Gamma Communications, and Alpha FX, which all generated gains of 50%+.
Today, however, I’ll be looking at some of my worst selections for the year. Here are three of my worst tips in 2019 and some lessons we can learn from them.
Tobacco giant Imperial Brands (LSE: IMB) was undoubtedly my worst performer in 2019.
Throughout the year, I tipped the FTSE 100 stock on a number of occasions as it had fallen considerably and its valuation looked incredibly cheap (not to mention the 10%+ dividend yield on offer). At some stage, I expected IMB to rebound. But it didn’t. It just kept falling. If you’d bought in early April after I tipped it then, you’d now be sitting on a loss of around 35% (only 30% when you factor-in dividends).
To my mind, the biggest lesson here is that trends can last a lot longer than you expect them to. Imperial shares have been very cheap for a long time now as tobacco stocks have been out of favour. At the same time, results haven’t been that bad (the dividend was recently increased another 10%). But none of that has mattered. The trend here is down. Ultimately, going against a powerful trend is a dangerous move.
K3 Capital Group
Next up, K3 Capital Group (LSE: K3C), which is an under-the-radar business sales and brokerage firm. I tipped it as one of my top small-caps stocks for 2019 in early January. Since my tip, it has also fallen around 35% (not including dividends).
The reason I liked the look of K3C was that it had experienced significant growth in 2018. For the year ended 31 May 2018, revenue climbed 53% and earnings per share rose 114%. The company also released a bullish update in December 2018 in which it advised that it had a record pipeline.
Unfortunately, results in 2019 didn’t live up to expectations due to challenges associated with Brexit. For the year ending 31 May 2019, revenue declined 18% and earnings fell 34%. This resulted in the share price falling significantly during the year.
The lesson here is that it pays to be careful with businesses that generate a high level of non-recurring sales. Revenue can be lumpy. This can result in wild share price swings.
Finally, data specialist D4T4 Solutions, which I tipped on 21 May. Its share price has fallen around 23% since I tipped it.
I still like the look of this company as it’s very profitable and data is a high-growth industry. Yet like K3C, sales here are lumpy. Recent half-year results were quite underwhelming with revenue falling 37% on the prior year.
As with K3C, the lesson here is that focusing on companies with high levels of recurring revenue could be a better strategy.
In conclusion, I’ll point out that losses are part of investing. No one gets 100% of their tips right. The most important thing is to learn from your mistakes so that you don’t make them again in the future.
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Edward Sheldon owns shares in Imperial Brands, D4T4 Solutions, JD Sports Fashion and Alpha FX. The Motley Fool UK has recommended Alpha FX and Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.