Jason Zweig recently wrote, "If I had to write one sentence that is true always and everywhere, it would be this: Smart investors did stupid things again today." He was referring to Michael Batnick's new book, "Big Mistakes: The Best Investors and Their Worst Investments."
Mr. Zweig then reminds us that making mistakes with your money is normal, human and hard to avoid. I will add that making mistakes in life is normal, human and impossible to avoid.
So I asked myself, what stupid money mistakes have I - an amateur investor - made? Here they are.
While vacationing in Alaska with our family a dozen years ago, I learned about the Pebble Project across the bay from Homer, Alaska. It's a mostly uninhabited area of Alaskan tundra that claims to be the "most significant undeveloped copper and gold resource in the world." Northern Dynasty (NAK) is the Canadian firm that owns the rights to its minerals.
Copper is critical for electrical wiring and eventually we'll need this copper, I argued. I purchased a significant amount of its stock over several years, not appreciating that the Obama administration could block the mine, which it did. The stock eventually dropped to 32 cents/share, about where it is today. I've lost 75% of my money while the S&P 500 has more than doubled (including dividends). The mine may still be developed but this was a bad investment.
I purchased USG Corporation (USG) fully aware of its asbestos liabilities, believing that a strong balance sheet could beat the courts. The courts won and in twelve months I lost 80% of this investment. Ironically, one of my first stocks I purchased was Manville Corporation, where I also lost most of my money due to the same asbestos lawsuit.
In 2007, when the real estate collapse was in full swing, I purchased Thornburg Mortgage REIT, seeing it as an opportunity to buy low. Six months later I got out after losing 86% of my investment. It soon went to zero. I didn't appreciate the severity of the coming Great Recession.
For years, I have had a probably unfounded belief that Mexico is a great investment. My argument goes something like this: they have a capitalist and growing economy, a functioning democracy, a young population and a northern neighbor that likes to spend money. They also live mostly outside the commodity/manufacturing yin-yang between Brazil and China.
Over the past dozen years, I've invested in a dozen Mexican companies and still have six of them. They have not done well and a few have been disasters, including Cemex (CX) and Empresas ICA.
Maybe I shouldn't trust places like Mexico but I seek some risky investments, believing they can also give great returns. And if the investments are uncorrelated, in total they needn't be that volatile. I have a similar faith in Russia and India. I may struggle with them but not much more than I do financial organizations, cash, bonds and China. And I often struggle with indexes, too.
My all-time failure is Peabody Coal. At the right price, I saw them as the no-brainer company that sells virtually unlimited cheap energy to a world that seeks a modern life. Eventually their stock reached a good price and I bought it three times on its way to zero. I missed the impact of shale natural gas, which mostly did them in. Peabody (BTU) has never stopped mining coal and remains the world's largest private coal producer.
Losses hang in the air much longer than the quiet gains of, for example, US broad index funds that have gone up four times in less than ten years. Looking through two decades for the big misses, I am surprised how few I have had. Not because I'm cautious or lucky but because in the long haul, most investments work out fine, some better, some worse.
If you avoid fees and trading, stay close to a set allocation, keep your eye on the big picture and largely ignore the sometimes painful noise underneath the covers, investing should work fine, even for an amateur.
Finally, note that big investment mistakes can be papered over with big wins. That's not so true in life where a big mistake can have serious consequences. This is largely why your emotions that are so useful in most of your life are often not of much help with investing.