As yesterdays post on TGAL shows you, we all make mistakes in investing. The question isn’t whether we will make mistakes but how we respond to the mistakes we make. My response was to sell by position in TGAL this morning. Yesterday’s press release with Q3 financials  changed my valuation of the company substantially, from one having a comfortable margin of safety, to one with none. Given that TGAL was also losing money made selling at a loss a cinch. I sold at $1.20/share plus $4.95 commission for a loss of $85. Be clear. I am not saying the stock will continue to go down. But the valuation proposition changes so much that it no longer looked like a good investment. When that happens, even if it is only after a matter of days. I sell. I am not in market to hope a company recovers. I am about preservation of capital first, then appreciation of capital. The important thing is to move on.

Where did I go wrong?

1) TGAL was losing money. For some reason I ignored this factor. I have made exceptions in the past, but that was for start up bio tech or Pharma companies that were Net Net stocks and had a chance to turn profitable, but also where the upside was much larger. TGAL didn’t fit even my exception.

2) Watch the quality of the assets. Jae Jun at Old School was kind of enough to remind in a comment on my VOXX posting. While Accounts Receivable have been declining, so has cash. And Inventories have been rising, not a good sign when your losses are edging up.

3) Too many purchases too quickly. I am a small time investor. I work a full time job and do this in my spare time. I can not afford to make mistakes that I made on TGAL. Better not to trade than buy in haste. This is something I practice with regularity, but failed at on TGAL.

Do you have any investing mistakes you would like to share? Post in the comments, particularly what you learned from them.

2 Responses to “Mistakes in Investing”

1. Parker Bohn
   February 16th, 2010 @ 6:01 am

   For me, one of the trickiest things about investing is determining when a bad result stems from a mistake (an oversight or error in process), or just from inevitable bad luck.

   It is very possible to make an investment that is fully rational, fits your portfolio, has a high expected return, and still loses money due to factors outside of your control.

   On the flip side, it is also possible to make money playing Lotto or engaging in other irrational activities.

   For instance, during the financial crisis in late 2008, I lost a good bit of money buying distressed financials and corporate bonds. I made a good deal more money investing in emerging markets and micro-caps.

   It is easy for me to now rationalize why the money-losing investments were mistakes, and the money-making investments were solid decisions. However, at the time, I made the purchases for the same reason – these assets were looking very very cheap.

2. chroma
   February 16th, 2010 @ 7:19 am

   Parker,

   A very astute and important distinction. As Graham understood, some of these low Price to book, Net Net stocks will not recover in price. Some will turn out to be losers. There are ways we can try to minimize that, but you cannot eliminate a bad result from a great decision. I believe James Montier discusses this very subject. I think that must be why Graham suggested selling after two years if you did not make any money on an investment, even though we would rather sell after a 50% gain. Thanks for stopping by.

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