As I cross over to a new year, it seems like a good time to look back at the investment decisions that I have made over the past year to find lessons that could be useful for other investors.
One standout event from 2016 was the buyout of Super Group Ltd (SGX: S10). In early November, a subsidiary of Jacobs Douwe Egberts BV (JDE) offered to fully acquire Super Group’s shares for S$1.30. At the buyout price, my total profit (including dividends) will be around 20%.
A 20% increase seems like a fair gain, but my investment in Super Group did not always look in good shape.
A look back at what happened
In May 2014, I purchased my first position in Super Group at around S$1.48 per share. Yes, that’s right; this is a stock price that is above the buyout price of S$1.30. On 23 June 2016, I added to my position in Super Group at a price of S$0.81. The second position I took has delivered an overall gain of 58%, thereby resulting in a positive return of around 20% for my total investment in Super Group.
If you had looked closely though, you may have noticed that my initial position in Super Group had fallen by a gut-wrenching 45% when I bought my second position.
How to invest fearlessly
It may seem like I have an iron stomach given that I had withstood a loss of 45% on my initial Super Group investment. But the trick to keeping calm is much simpler than that, in my view. Here are two simple tips:
1. Know your risk tolerance – head here
2. Take your time to invest using small positions
I have written about taking smaller positions before. I have also repeated the message here. But how small is small, you might ask? In my view, it should be small enough that you will not sell your stocks in disgust when things head south.
For me, my initial position in Super Group represented only a small piece of my portfolio. A subsequent 45% plunge was not a pretty sight. However, I could tolerate the fall because I did not invest a cent more than what I was comfortable with.
Having a small position also set me up with the right frame of mind.
Without the pressure of a 45% loss in my mind, I had the capacity to think logically when the chips were down. I was also able to act after I studied the progress of Super Group’s business. Said another way, I was able to focus on the business of Super Group with as little bias as possible instead of worrying about the company’s share price. In my opinion, this is the key to making better investing decisions.
Furthermore, I could also take my time to make a decision, backed by my study of Super Group’s business. My second position was taken more than two years after my first position. In all, small positions enabled me to invest fearlessly.
Stick around for my next tip!
Note: A third tip has since been published and can be found here.
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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 Chin Hui Leong owns shares in Super Group.