Key person risk is a thing: MFG
Yes, a charismatic founder can be wonderful for a stock price, but ultimately the value of that single person is intangible. And once that person leaves, you're left with empty air.
Over the years I have made the Only Fools and Horses Del-boy statement "this time next year I'm going to be a millionaire" only to see my dreams evaporate.
One thing I would suggest is you can only love or not love a stock. My own view point is while I am in love it's a buy and hold, when it gets a bit on the nose and doubt creeps in, I like to sell (doesn't always work). When you sell, find another you love... but just because you have money burning a hole in your pocket doesn't mean you have to spend it that day.
But I do like to keep a pretty big number of stocks, usually about 20ish. So hopefully I then split the risk and don't lose 100k on one stock. I generally buy $5k in something I am not too sure about, $10k for most buys and up to $50k on something I have a strong belief in, but watch like a hawk. That way if a $5k stake goes to $1k, I have only lost $4k, which in the big scheme of things means I will only sulk for about one day before getting over it.
Thankyou @Bear77 for sharing. Wise words, extremely informative and extensive insights. A written Investment Thesis (IT) is something that I have not particularly paid a lot of attention to, and is probably a weakness in my investment strategy. It has made me re-evaluate what I am doing and will hopefully make me a better investor, because in the past I have held on to my losses far too long in the hope of them coming good, which invariably they rarely do. I always believed that if I sold these, then I'd just be "locking in my losses" I really like your analogy of "changing horses mid-race"!!!
Thanking you again. I really appreciate your advice, wisdom and the time you invest. I also suspect so many others on this platform share the same sentiment.
Timbercorp was a forestry company wrapped around tax deductible products for wealthy taxpayers. It offered incredible discounts to NTA and Steve Johnson of Forage and formerly of the newsletter The Investment Advisor was in love with it and it’s future potential. That’s what got be interested. So, strike one - always back yourself and fully appreciate that the ultimate and only responsibility rests with you when it comes to investments.
But the biggest lesson I learnt from Timbercorp (and there have been others) is FOLLOW THE CASH. If there is a big disparity between NPAT and OPERATING CASH adjusted for non cash items - BEWARE.
These days inventive accountants can come up with any number of smoke & mirror tricks to pump up the profitability - but disguising actual cash banked is a harder proposition.
Investors in tech stocks should look at the amount of expenditure capitalised, rather than expensed. Not all assets on the Balance Sheet will recover dollar for dollar. Ditto for mining services companies and professional companies like solicitors and accountants where a build up in ‘work in progress’ can be a puffed up asset not fully recoverable.