It always drives me absolutely f@$king crazy to read articles written by so-called market “pro’s” about “predictions” for the year ahead, or articles providing “price targets” for major indexes and stocks for the year ahead. These articles are nothing more than pundits looking for publicity. Honestly, I am not sure how some of these guys can even show their face year after year with some of their track records. For example, the same guy who called for oil to end 2015 around $75/barrel is now predicting $25/barrel at the end of 2016. Really? Is that someone you would pay any attention to? I don’t think so. Anyways, I could rant for hours on this topic.
However, in my opinion it’s always a worthwhile exercise at the end of each year to reflect on some of your personal learnings from the prior year so that you continue to learn and improve as an investor in the years ahead.
Biggest Lesson from 2015
This past year it was proven to me just how important it is not to get emotionally attached to any of your holdings, and to not be afraid to hit the “sell” button when the company is not tracking your original investment thesis. It is VERY hard for someone who considers him/herself a very long-term investor (me!) to sell a position only a few months after initially purchasing it. But, doing so for the right reasons can save you major heartache.
Let’s take a look at a few real examples from this past year:
I originally purchased Microbix on 2/17/2015 for $.44, which I thought was likely the bottom for the stock. I sold on 9/21/2015 for the same price of $.44. Currently, Microbix is trading around $0.31. The reason I sold is because the company was not tracking my investment thesis; it was taking far too long to commercialize it’s key products despite promises from the company quarter after quarter it was close to reaching agreements to do so. The core Virology business is solid, but without the commercialization of Kinlytic and Lumisort the stock is likely dead money.
Kelso Technologies (KLS.TO, KIQ)
I originally purchased Kelso on 8/17/2015 for $1.16 and sold it a few months thereafter on 11/2/2015 for $1.43, a gain of 27%. I had no intention of selling Kelso, in fact I thought this company would be one I could hold for decades as I envisioned it as a business that would eventually reach $1 billion in revenues. However, I chose to exit after a nice pop in the stock because it was clear my investment thesis was not playing out as suspected. The company’s revenues were shrinking due to a complexity of regulations that in the long-term will help the company, but in the short-term has really set them back. There are a lot of uncertainties around when their business will pick back up, and there are better opportunities that exist than for me to stay invested in the company. Last week Kelso (KIQ) hit a low of around $0.80 before closing a little above a dollar to end 2015. By selling, I certainly saved myself (and my portfolio) from a rather significant decline as this was a somewhat sizable holding for me.
I originally purchased Brekford on 7/24/2015 and my cost basis was $0.22. I did a ton of due diligence on Brekford and felt that there was a ‘story’ here that was too good to be ignored. But, it was just that…a story. However, the company was showing significant financial improvements quarter over quarter and year over year so there really was real progress.
So, why did I sell for a 10% loss? I will point you to my two articles on why…here and here. But, in short, I started getting very strange mixed messages and I became significantly disturbed by the company’s lack of shareholder communications despite positive events likely occurring (i.e. new red-light cameras going live). As I mention in one of my Brekford articles, “life is too short to constantly have to question an investment”.
Xpel Technologies (XPLT, DAP.U)
This is the one example that really drove this lesson home for me in 2015. I will chalk this one up as luck more than anything else, but after initially taking a position on 11/30/2015 for $1.64 I sold on 12/18/2015 for $2.10 because I realized that I really didn’t understand the company and its business. I rushed into the position because I thought the price had gotten to pretty attractive levels, but in the weeks after I really couldn’t wrap my head around the business to the extent I normally like to. I totally went against my process and discipline buying the stock, but I got lucky to get out with a 28% gain. Fast forward to 12/30 and 12/31 and the stock literally went on a downward spiral when 3M announced it has filed a patent infringement lawsuit against Xpel for 3M’s patented paint protection films. Read my article on this by clicking here. I watched the stock drop as if it had no bottom, and decided to buy the stock once again around $0.85. On 12/31/2015, the stock closed at $1.01. The reason for my purchase this time was because I feel the fear is completely overdone and there is significant upside from current levels once more clarity comes forward regarding Xpel’s position on the 3M lawsuit.
The lesson for me with Xpel is if I decided to hang on to my initial purchase, despite not fully understanding the company and their business, I would have had to endure a drop from $1.64 to the mid $.70s. I know many of you are enduring that right now and it is painful, but hang in there until more clarity is provided and I think the stock will start to rebound nicely.
In summary, do not be afraid to sell a company shortly after purchasing it even if you consider yourself a long-term investor. Keep the above lesson in mind in the years ahead. I know that I will.
Do any of you have any similar stories to share?