Every investor will make investment mistakes. Many of my mistakes have led to painful losses that could have been avoided. However, with each experience, there’s always an invaluable lesson that can be learned. With that, I have decided to share my worst stock investment and the lessons I have taken from it. “Diworsifying” its business While I have had many investments which have not performed well, by far the worst performing Singapore stock that I owned was Neo Group Ltd (SGX: 5UJ). Back in 2014, when I first bought shares of the company, food catering was the bulk of Neo…
Every investor will make investment mistakes. Many of my mistakes have led to painful losses that could have been avoided. However, with each experience, there’s always an invaluable lesson that can be learned.
With that, I have decided to share my worst stock investment and the lessons I have taken from it.
“Diworsifying” its business
While I have had many investments which have not performed well, by far the worst performing Singapore stock that I owned was Neo Group Ltd (SGX: 5UJ).
Back in 2014, when I first bought shares of the company, food catering was the bulk of Neo Group’s business. At that time, Neo Group was a high flying stock. The company was listed in 2012 at a price of S$0.30 per share and when I purchased my shares in the company, its share price had more than tripled to S$0.91 per share.
Optimism around the company was rife as revenue and profits were increasing on the back of higher volume at its food catering business.
However, over the next few years, the company’s decision to expand its business backfired. Neo Group acquired TS Group and CT Veg Group in 2015 before acquiring other food trading businesses. The company’s management believed that expanding into the food trading business would help to diversify its revenue stream and “synergise” with its existing food catering business.
But as you may have guessed, neither of these outcomes materalised. In addition, many of the new businesses it acquired were generating losses. Therefore, despite increasing its top line, margins at the company suffered and resulted in lower profits each year. By the time I decided to sell my shares in 2017, its shares were trading S$0.63, 30.7% lower than when I had purchased them.
That said, I was lucky to sell it at that time. Since then, its shares have plunged another 30% and today trade at S$0.43 per share.
The painful lessons within
There were many important lessons from my experience, both from what I did wrong and what I did right.
Clearly, the mistake I made for this investment was jumping on a high-flying stock that had too much optimism baked into it. Its shares at that time traded at nearly 20 times its earnings. It was a steep price to pay for a company that dealt in the highly fragmented food catering business. Neo Group was also a newly-listed and unproven company with lofty ambitions.
Moreover, at that time, it was already obvious that the company was looking to expand its business beyond food catering. While expanding outside its core business could diversify its income stream, it was also a highly risky move that could weigh on its bottom line, which ultimately proved the case.
Despite making a hefty loss in this investment, I made one good decision that helped me avoid bigger losses. By selling my shares in 2017, I cut my investment losses, compared to if I continued to hang on to my shares.
As a long term investor, I rarely decide to sell my shares. However, Neo Group’s poor acquisitions that were meant to drive growth ultimately led to weaker profits, and it has not been able to turn its business around. In an interview with The Business Times in December 2018, Neo Group said it had already pared U-Market Place Enterprise Trading operations and floated the idea of spinning off TS Group, two subsidiaries that just were acquired in recent times.
This, again, seems to me that the company was too rash in its acquisitions and just a few years later, is looking to undo its mistakes.
As investors, it is tempting to hang on to our losing shares in a desperate hope to recover our losses. However, if the company’s fundamentals change dramatically, as was the case above, admitting our mistake and letting go may ultimately be the best option.
The Foolish bottom line
“It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes” –Warren Buffett
We are all human. Even one of the best investors in the world, Warren Buffett, has admitted to making investment mistakes before. However, each time we make a mistake, we should reflect on what went wrong and how we can improve in the future. Hopefully, by sharing my experience here, investors reading this can learn from it and avoid making the same mistakes I have made.
Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.
The Motley Fool’s purpose is to help the world invest, better. Like us on Facebook to keep up-to-date with our latest news and articles.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Jeremy Chia doesn’t own shares in any companies mentioned.