How I Lost 414% In This Company

There are two important mistakes that I feel investors should learn from.

One is obvious and it deals with the big losses that result from us making wrong purchases. These are mistakes of commission.

The other, which is less obvious, is the forgone profit that arises as a result of us not acting on an investment idea. These are known as mistakes of omission. 

If asked to make a choice, I’d say that mistakes of omissions are far more important to learn from than mistakes of commissions.

Why so? The answer’s simple. That’s because the most you can lose if you make a wrong investment is 100% of your capital in that company (though usually we will never get there unless a company goes bankrupt). On the other hand, a mistake of omission can cost you an “infinite” loss – for instance, when a stock you did not buy moves from $1 to $5, you’re in effect ‘losing’ 400%.

It pains me to say this, but I have made many mistakes of omissions in my investing career. I would like to share some of my lessons from these experiences of mine. But before I do so, I’d like to walk you through one personal example.

One of the best-performing stocks in Singapore’s market in the last five years is Riverstone Holdings Limited (SGX: AP4), a company that produces rubber gloves that are used in cleanrooms and for healthcare purposes. Partly as a result of a 174% increase in its profits, Riverstone’s share price is up by 323% over the last five years.

By now, you may think that my mistake of omission is me letting Riverstone slip through my grasp five years ago. Thing is, my mistake actually involves a similar company that is listed in Malaysia: Kossan Rubber Industries Berhad (KLSE: 7153.KL). This company also makes rubber gloves, but focuses more on the healthcare industry.

Slicing a long story short, I had wanted to invest in Kossan in 2011 when its shares reached a price of around RM1.30. But, I only wanted to pay RM1.20 and was too stingy to pony up that extra 10 sens. Kossan’s shares never reached RM1.20 on any occasion over the last five years; instead, they jumped by 414% in price from RM1.30 back in 2011 to RM6.68 today.

So what did I learn from my experience with Kossan and others (yes, there were other similar episodes)?

First, do not be too stingy with a share’s price. That’s especially so for a company with a business that you think can perform well for a long time. Though 10 sens seemed to mean a lot in 2011 (it was 8.3% higher than my target price of RM1.20!), it mattered little over the long-term.

Second, be patient and focus on the long term. The bulk of Kossan’s returns over the past five years actually took place after 2013, which is two years after I initially became interested in the company.

Third, understand your investments well. Back in 2011, I don’t think I had enough confidence to invest in Kossan due to the lack of a sufficient understanding of the gloves industry. As such, I focused more on quantitative measures rather than the qualitative aspects of the business. A stronger focus on the latter may have allowed me to jump over my price hurdle.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.