My Biggest Investment Mistakes - Stock tips from the deceased

Aaron Hodson Sep 15, 2015

Every investor — even the great ones — makes mistakes, sometimes doozies. But if you don’t take a stock hit once in a while, you're probably playing things too conservatively, and getting weaker investment returns as a result.

Investors can't be afraid to make mistakes. They will happen. The key is to learn from them, or, at the very least, try not to make the same mistake again.

For the past few months on our website, we have been running guest blogs of well-known investors outlining their investment mistakes and what they have learned from them. Now it's my turn.

Dejour Mines Ltd. (now Dejour Energy Ltd.)

Very early on in my investing career, I used to share investment ideas with Dave, a paramedic friend of mine. One day he told me about a stock called Dejour Mines, and how it was on the verge of great things. I didn’t ask him many questions.

Not much later, after buying the stock and losing practically all my money, I asked him what the deal was. Dave said he had no idea: He got the idea from a patient he picked up from a car accident, and was trying to keep him lucid on the way to the hospital with some chit chat.

"Well," I said, “what is the guy saying now?” Dave’s answer: "He didn’t make it.” That’s right, I bought a stock with a tip from a dead guy.

Lesson learned: Do some homework.

I assumed things were the same

In 2007, there were some very tough market days as the early problems of the credit crisis emerged. As a fund manager, I was gleefully picking up bargains in the latter half of that year, doubling positions from worried sellers. It worked like a charm, and my fund had a spectacular year in 2007.

I kept right on buying as the market declined in 2008, thinking my prior year’s strategy would work so well again. Of course, my fund ran out of cash halfway through the year, and then everything collapsed further.

Rather than being able to scoop up bargains, my fund was hit with redemptions, and I was forced to be a seller at the worst possible time. There were no bids on some stocks, and there I was trying to sell a million shares of this, that or the other.

October 2008 was about the worst experience I have ever had as an investor. I wanted to buy, but was forced to sell.

Lesson learned: Keep some powder dry, especially if you might have a cash call. The last thing you need is to be forced to sell stocks into an already bad market.

Sprott Inc.

Don’t get me wrong, I loved my time at Sprott and worked with some of the brightest minds on the Street. I was part of the road show's sales team when the company went public, pitching its merits to IPO investors.

After travelling all across North America with my sales hat on, our investment story sounded great. By convincing investors to buy, I had fully convinced myself not to sell. I did not sell a single share I owned when the company went public at $10 per share. It’s $2.30 today.

Lesson learned: Be skeptical on sales pitches, even (or perhaps more so) if it is your own.

Timminco Inc.

My fund starting buying Timminco, that infamous solar stock, in the $1 range. We bought and bought, and ended up owning about 17 per cent of the company.

We thought Timminco was going to change the solar industry forever, and make lots of money. We talked about it on TV, mentioned it to analysts, and it sure looked good to us. When others started buying, it both confirmed our analysis and pushed the stock up to $35 in a very short period. How good is that?

Well, as is now well known, the stock flamed out — badly. I sold lots at $30-plus, but being in love with a company that was eventually delisted never sits well with anyone.

Lesson learned: Don’t fall in love with a stock, even if others agree with you.

Indomin Resources Ltd.

In 1996, there was this great company called Bre-X Minerals Ltd. It had discovered a motherlode of gold in Indonesia, and the stock went from pennies to $200.

As a fund manager, a company called Indomin came to visit us. Their pitch: It owned property "only" 10 kilometres from Bre-X’s property. Surely, the gold didn’t know anything about property lines, and there was "so much" gold that it "surely" extended to Indomin’s lands.

The smaller company, on the heels of Bre-X, grew to a market cap of about $400 million, if memory serves correctly. We bought in fully, and the fund I ran owned about five per cent of the company at one point (in my defence I was running a very aggressive small-cap fund).

Bre-X was determined to be a fraud in 1997 and we were stuck with millions of shares in a gold company with acreage right beside a fraud. I am sure you can imagine how well that turned out for us.

Lesson learned: So many lessons here: don’t believe the hype; do not assume anything when it comes to geology; don’t get caught up in a hot sector; and don’t own a lot of an unproven company.

See the past mistakes here:

Ryan Modesto (5i Research)

Mark Seed (MyOwnAdvisor)

Iain Butler (Motley Fool)

Robb Engen (Boomer & Echo)

Frugal Trader (Million Dollar Journey)

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1 comment


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Sep 16, 2015
This theme for the blog is great. One thing I have personally noticed is that to be a good investor, you pretty much have to EXPERIENCE horrible mistakes to learn from them. Some of my mistakes which are hopefully "fixed" were focusing on outcomes rather than process and not truly knowing what type of investor I was. I wish I could say those two were the only ones :)