Every time I drift away from my usual strategy to invest in profitable businesses with a medium to long-term history of producing satisfactory results on invested capital, I usually lose money. Investing in sexy and interesting stocks usually brings with it much attention, both from investors and competitors.
My biggest losses year to date came from Fjordkraft where I realized a 15 000 kr ( $1700) loss minus some dividend income. But Kambi has certainly taken first place with a 42 691 kr unrealized loss ($4800).
In Fjordkraft’s case, I underestimated possible new competitor’s incentives to cut prizes to create more loyal customers. A cellphone operator could get into the electricity retailing in the consumer market to offer more to customers. It could provide electricity at cost or a small profit to an existing mobile customer to make the offering more enticing. Returns on capital should revert to the cost of capital in industries that provide a product or service with commodity-like characteristics. In my opinion, Fjordkraft looks like the latter, and It should be hard to hold on to 30%+ adjusted EBIT margins.
In Kambi’s case, it looks like I underestimated and did not account for the concentration of customers. You can see in the graf that a few crucial customers stand for a substantial part of revenues. Since Kambi was a part of Kindred before it was spun out, one could argue that it’s a very reliable source of income. Penn and Draftkings are a substantial part of 2021 estimated revenues, and they’re crucial to the United States growth story that many were relying on.
Fear of missing out
Another mistake I made this year was buying something I do not really understand and thought I was okay with having a small exposure to Ethereum. I ended up having around 2% of my portfolio in an Etheruem ETF. After a short while, Ethereum fell 30% in one weekend, and boy did I feel foolish for investing/gambling in something I don’t really believe in. Ended up selling at breakeven, but It is a great reminder that I hate losing money, especially when the decision for investing was so poorly made.
Dumb people make the same mistakes over and over again, smart people learn from their mistakes and wise people learn from other people’s mistakes.
By opening up on some of my own mistakes, I hope that you could learn something valuable.
Overconfidence
Being overconfident is a dangerous thing to be in the stock market. It makes you take on excessive risk via highly concentrated bets, taking on leverage, or thinking you could predict short-term fluctuations. I’ve probably been overconfident lately, especially when my positions in the iGaming sector had produced a remarkable return this year.
Finding companies that have already won in their industry and can probably continue to increase their revenue by 5-10% a year in a long period is much easier than finding small-cap companies that could become future winners.
It would be much easier for me to continue to focus on the companies that already have won, and if I want some small-cap allocation, I could buy a mutual fund with the sole focus on small-cap stocks like the one below.
Reduce leverage in the portfolio
Thanks to Evolution, Microsoft, Alphabet, Facebook, and Constellation Software, this year has been very good. A lot of my largest holdings have produced great returns year to date. I was soo near to finish a day at above one million kr in equity value in my Nordnet account. I had a couple of days where it was above, just before it closed right below. Maybe I needed to have a setback from Kambi to learn myself a lesson.
Anyways my stock portfolio has had a great run since March 2020. In the downfall, I didn’t have that much invested in public companies, but I managed to invest a lot in the subsequent months. The account’s value has increased by 546 650 kr since July 2020, which is fantastic.
Interesting companies to watch:
Interesting companies that I want to research more:
Danaher Corporation
Moody’s
S&P Global
LVMH
L’Oreal
Thermo Fischer Scientific
Diageo
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Disclosure!!
Always do your own research before investing in a stock!! No one knows whether a stock will go up, down, or sideways at any given time, and I’m no exception to that rule. I hope that you enjoyed this post but It should not be considered financial advice.