One of your primary goals as an active investor should be to extract as much educational value from each investment so that the lessons learned can be used to create additional financial value in the future.
That’s why I always carry out a post-sale review as soon as I make the decision to sell an investment.
However, not every investment provides new lessons. Typically the worst investments are the best teachers, which is one reason why the occasional duff investment isn’t necessarily a bad thing.
In 2017, four of the six investments I sold contained useful lessons. There was also a change to the rule about how many cyclical stocks my portfolio can hold. In summary, these lessons were:
- Standard Chartered: Use a variety of metrics to assess bank balance sheet strength
- Morrisons: Beware of massive capital investment sprees which are funded by debt
- Braemar Shipping: Be careful with companies that are exposed to the capital investment cycle
- Rio Tinto: Only invest in highly cyclical companies at extremely low valuations
- Cyclical stocks: Don’t excessively focus on defensive stocks at the expense of attractively valued cyclical stocks
Personally, I really enjoy this process of self-assessment and continual improvement, and hopefully, you’ll find these hard-won lessons as useful as I do.
2017 Investment Lessons
- Standard Chartered: Bank balance sheets
- Morrisons: Capital investment funded by debt
- Braemar Shipping: The capital investment cycle
- Rio Tinto: Highly cyclical companies
- Cyclical stocks: Don’t excessively focus on defensives
