In early 2013, I had invested in another Swath OSV subsidiary, “Cruise Limited” (Cruise). At the time, Victory was a dormant subsidiary of Swath.

Between early 2013 and October 2013, the share price of Cruise appreciated substantially, the company continued to win new contracts, financial performance improved quarter-on-quarter and the financial position was sound, though the company was taking on increasing levels of debt.

In October 2013, Swath signed a deal to sell its majority ownership in Cruise to a private equity firm. The acquisition immediately required the private equity firm to buy all remaining shares. The private equity firm offered a 15% premium to the 15-day volume weighted average price prior to the offer date. The sale was completed in December 2013.

Success arising in parent company fuels overconfidence in subsidiary

Overall, the investment in Cruise resulted in a return for me of around 125% for a 10-month investment (or absolute profit of about 250,000 Singapore dollars [187,000 US dollars]), and I was brimming with confidence of course at the prospect of such returns continuing.

In November 2013, having finalized the sale of its stake in Cruise, Swath’s management decided it would invest the profits from the sale into Victory. Following the announcement of that investment in Victory, to turn it from a dormant subsidiary into a going concern, Victory’s share price immediately appreciated, further egging on my desire for similar gains.

Failed to act decisively to take an opportunity when its time had come

In early December 2013, Victory entered into a JV with a major Middle-Eastern OSV company. Following this announcement, Victory’s share price appreciated further. In hindsight, if I had invested in Victory in early November 2013 instead of early March 2014, I would have made a very handsome profit in a very short time (about 300%). However, I hesitated, I guess out of fear of the risk to what I had put in. Nonetheless, after reading about the future expansion plans for Victory in March 2014, I decided to invest.

Then came a long list of warning signs amid lack of due diligence

At the time, I did not do sufficient due diligence to review the financial position and performance of Victory, Swath, the history of the JV partner, nor the current projection/forecast surrounding the oil and gas sector.

In essence, I decided to invest due to (a) confidence that the parent entity had sufficient prior success in developing a subsidiary in the OSV sector to repeat such success, and (b) overconfidence that the oil boom would continue. Up to that point, the oil and gas sector had been through a significant boom for nearly five years, with oil prices booming past US$100, major projects being announced, and large contracts being awarded. However, in early 2014 there were numerous red flags that the good times were coming to an end.

Six months of flat or negative growth raises no alarms

In early March 2014, I invested in Victory with an amount equal to about 40% of my original capital investment in Cruise. From March 2014 to August 2014, the share price of Victory generally stagnated (rising 10% or declining 10% but across the period, generally flat).

Sector also signals ‘danger ahead’

In August 2014, the oil sector edged toward the cliff. Regardless, I held on to the notion that “it’s only a correction, and it will come back”. However, the warning signs of a major collapse were flashing. In the same month, after a correction in Victory’s share price following a slide in oil prices, I invested another amount, around 10% of the original investment I had invested into Cruise.

Stands and watches oil prices burn but again fails to act on losses

In late September 2014, oil prices went over the cliff to below US$100, then US$80 and so forth. As the price declined, I simply viewed it as a great chance to average down and grab a bargain in Victory. I had totally ignored the sector’s problems, the flow-on impact to upstream-related sectors and financial performance and position of Victory.

Refusal to set or obey stop loss stems from denial over false bottom

Rather than put in a stop-loss position and decide to accept the many losses and move on, I persisted with averaging down concluding falsely that the bottom had been reached every time a rebound occurred at a resistance level.

Between September 2014 and January 2015, however, the share price kept falling and I kept averaging down to the point that I had reinvested all my original Cruise capital.

Unable to let go of investment despite all evidence

At this point, I stopped averaging down or investing new capital. Even so, the share price continued to fall. In hindsight, I should have sold out my entire position regardless of the losses. However, I continued to hold, refusing to accept the losses, and due to the incorrect presumption that “everything will get better and I’ll get money back”.

False hopes and hurt pride prove a dangerously unprofitable mix

My overconfidence, unwillingness to own up to the loss through hurt pride, and false hope that the sinking ship would at least stay at the surface, all combined to blind me I suppose, and my fingernails remained dug into these investments.

Between January 2015 and September 2015, the share price of Victory stabilized, though it was down more than 60% from initial investment levels. In October 2015, the parent entity of Victory, Swatch, filed for bankruptcy. Accordingly, the share price of Victory fell 50% the day after, and continued to fall until November 2015.

Since, November 2015 oil prices have been on more of an upward trend, but the OSV sector has remained significantly depressed. Accordingly, while oil prices have increased, Victory’s share price has continued to decline and is now 80% down on the level it was at during my initial investment. Despite all of this, I have refused to sell, unwilling to accept I made a mistake, and still feeling a recovery is due.

The investor who hung on like a legendary bulldog

Relative to other OSV companies, Victory has achieved stronger final performance than competitors, undertaken a successful refinancing exercise and boosted its order book. However, given the extent of its prolonged losses, the amount I invested, the length of time I invested in a company with a very poor share price, and my stubbornness to abandon the position, I conclude that it the worst investment I ever made.

Andrew’s takeaways – Avoid these mistakes to become a better investor

The toughest question to answer: ‘When should I give up?’

In the world of traditional, fundamental investing, it is hard to take a loss. This is very different from traders who set up stop-loss points for each of their trades. The difficulty for fundamental investors is that they have devoted their life to trying to find good companies with good stories. They work hard to research these ideas and then they invest. When the share price goes down, the traditional fund manager will think that they see something that the market does not. But truthfully, who knows?

One way to solve this dilemma is for the traditional investor to say to himself: “My idea may have been right but maybe it was the wrong time”. A next question to ask would be: “Knowing what I know now, if I didn’t own this company today, would I buy it today?” If the answer is “No” then it is a good sign that you should exit the position.

Consider using a stop-loss as a money management tool

Assume a trader buys a stock at 100 and puts a stop-loss at 80, if the stock falls to that point the broker is supposed to sell the stock. By planning your future action, you take your emotion out of the investment. A typical fundamental investor abhors such behaviour because it would imply that he is not confident about his research conclusions.

Avoiding loss is critical

When considering long-term returns, some of our research has shown that avoiding large loss is more important that getting high returns. This is like saying that to be a successful batter in baseball it is more important to not strike out, rather than to hit homeruns. Preserve your capital by accepting that the share price can move against your position for a long time.

Mistakes in this story

2. Failed to properly assess and manage risk

• Bought more as the price went down
• Failed to set a stop-loss and follow it

3. Were driven by emotion or flawed thinking

• Failed to invest in a good, familiar idea

5. Failed to monitor their investment

• Failed to review investment strategy regularly

Learn about the six ways you will lose your money and how to avoid them here.

The post False Hope, Poor Due Diligence Blinds Oil Industry Investor appeared first on My Worst Investment Ever.

Serious case of following the bitcoin herd

This trade was 100% driven by fear of missing out as the price of Bitcoin (BTC), Ethereum (ETH), and Ripple (XRP) kept surging higher. I started to feel dumb as I watched the price of BTC go from a few hundred to many thousands and then to 16,000 dollars, and I had yet to take any action.

So, I waded in. I remember the intensity; by the end of that day I had learned how to set up an account on a crypto exchange, how to deposit money in that account, and how to create and use the “wallet”. By that evening, I had sizable investments in BTC, ETH, and XRP.

Inadequate research about type of investment

Only then did I start researching about crypto-currency’s utility and encountered many articles and charts about the similarity between the crypto craze and “tulip mania” (when speculators during the 17th Century’s Dutch Golden Age traded tulip bulbs for extraordinary sums of money until, without warning in February 1637, the market for them spectacularly collapsed).

Fear over holdings leads to loss of sleep

I think you can see how lucky I was. That BTC price level I mentioned was near its record high. A couple of weeks later, that price started to tank. I began checking the prices almost every hour and had trouble sleeping. So, at the end of week four from the first day of my investment in the currency, I sold everything.

I took a loss of about 20% in BTC, but the huge gains in ETH and XRP saved me. I may be wrong many years from now, but now I can sleep again! Today, I still have some positions in these coins, but they’re so small that I think of them as lottery tickets rather than a proper investment.

Too fast, too furious and caught up in FOMO fever

To recap what I learned was not to be swept away by the fear of missing out, realize that fast decisions are often wrong decisions. I realized how lucky I was and learned from this only when a good friend of mine lost a couple of million on his XRP investment a couple of weeks after I exited. Finally, always do thorough research!

Andrew’s takeaways – Avoid these mistakes to become a better investor

Take the time to use your evolved and informed brain, rather than your base feelings

To be successful in investing means to accumulate wealth over a long period. When you are driven by fear or greed, you overlook things and don’t have time for thoughtful analysis. Slow down and invest right, take the time.

Investing without research is like jumping off a ship without knowing how to swim

Of course, if you follow what everyone else is doing, without question, you won’t even know where you’re going. You don’t have to act against the herd, but you should do your own research to understand where the herd is going and why. Through this research, you also want to understand what factors would drive you to break away from the herd.

Investing is hard. I can’t tell you the number of people who have sought my advice about investing. When I asked them how many books they had read on investing; the answer was zero. When I asked them how many academic papers they had read, the answer was zero. Or, how many courses they had taken, zero. Investing without doing research is just playing with fire; with gasoline and fire!

Plans are needed as much for exiting an investment as entering

The most important part of planning is planning for when things go wrong. When things go wrong with an investment, it usually means the price is falling. Set your plan about what you will do when that happens. It will be hard to stick to that plan, but if you have no plan, you will just be driven by emotion.

Mistakes in this story

1. Failed to do their own research

• Inadequately researched type of investment

2. Failed to properly assess and manage risk

• Failed to set a stop-loss and follow it
• Had no exit strategy for when things went wrong

3. Were driven by emotion or flawed thinking

• Let emotions drive their investment decisions
• Were driven by FOMO

Learn about the six ways you will lose your money and how to avoid them here.

The post Confessions of a Crypto Lemming appeared first on My Worst Investment Ever.