Wednesday, January 2, 2013

Investment mistakes of 2012

"Those who do not remember their past are condemned to repeat their mistakes" George Santayana

One of the things I have noticed this past year is that companies deteriorate faster.  I am not sure if this happens because we are more connected then ever or for another reason.  Email, smart phones, internet (twitter, facebook etc), or 24 hour news but companies deteriorate faster.  Perhaps it is because employees can see or hear the issues more readily morale declines faster, further compounding initial issues.  

Even making very pessimistic scenarios for Best Buy (BBY) and Research in Motion (RIMM), both caused plenty of carnage in my portfolio.  I have exited both positions.

The new rule for declining companies is: Be very wary of any company projections as they are generally too optimistic and keep getting revised down.  Even using pessimistic scenarios under the company projections, I still was burned by multiple projections lower.

Buybacks, which I viewed favorably during these types of declines need not be aggressive.  If aggressive, that (probably) means that management continues to be too optimistic.  I saw both BBY and RIMM buy back a bunch of stock at higher levels, only to slow or stop buybacks to conserve cash. 

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