The cost of being too greedy

[i4value]

Yesterday I shared examples of how I have left money on the table by selling too early. In this article, I will share the opposite challenge with 2 examples. These are about  not selling fast enough or losing out because I was waiting for higher price.
 
HeiTech Padu.
This is a Bursa Malaysia IT company where I had some investments in 2019 at RM 1.04 per share. In Oct 2020 there was market rumor that the company was going to be awarded some MyEG-type of government contracts.

The prices started to go up following the news. I did not see the news but saw the price moving up as I was checking on prices every other day. The news was something I found out when I tried to see the reason for the price hike.

I started to sell when it reached RM 1.59 per share. I kept selling a few lots at a time following the price uptrend. But I held back my balance of 10 lots when the price reached RM 1.80 per share. I was greedy and wanted the last 10 lots to be above RM 2.00 per share.

But as can be seen from the chart below, the price did not go beyond this level and quickly dropped below my average sale price of RM 1.62 per share. To make a long story short, I am still holding the 10 lots. The market price as of the end of March 2023 was RM 0.75 per share. This is the price of being too greedy.


 
Poh Kong
This is a Bursa Malaysia gold jewelry retailer. I bought the shares about a decade ago at an average price of RM 0.45 per share. For many years the price did not change very much. Then sometime in Aug 2020, the price spiked up.
 
There was no special news about the company. The only reason I could think of was that gold prices had begun to go up following the Covid-19 global lockdown.
I only found out that the price had spiked as I was looking at the prices every few days. I sold off about half of my investments over the next few days at an average price of RM 1.73 per share.

I held onto the balance hoping for higher prices. But as can be seen from the chart, it was a temporary situation as prices dropped below RM 1.00 per share within 2 weeks after my last sale.



The price has not gone above RM 1.00 per share since then. And I still have the balance of half of my original investments. In hindsight, I was trying to be too clever and greedy.

Moral of the stories? Being greedy does not help. Selling too early also does not help. After 20 years, I have not found the balance.

For more insights go to How often do you review the stock picking portfolio?

[weijian]

hi i4value,

If we apply hindsight bias to every decision we make, it is focusing more on the result than the process. And we all know that focusing on the process of decision making, is more important than focusing on the result. As the well aged saying goes - A wrong decision may still make money for you, while a right decision may not make money.

That said, the 2 scenarios you described are very common for OPMIs like us. Personally, I look at it by trying to find a balance.

(1) If I am an investor who prefers cheap prices, then it is better to emphasize qualitative criteria over quantitative criteria for cut-loss selling. This is because if natural self for such an investor profile is to buy at cheap prices, then it is very hard to cut loss when the price gets cheap(er) even though cutting loss is probably the right thing to do. We have witnessed how destructive averaging downwards has been for losses. Same thing for profit-taking selling - The price conscious investor is not very comfortable holding expensive companies, but forgets that quality companies never come cheap. Fortunately, quality companies make good use of their retained earnings to compound their returns for the future. When this happens, Mr Market re-rates it and generally, good things happen after good things happened.

(2) If I am an investor who dreams about quality and willing to pay based on high price/sales multiples, then it is better to emphasize quantitative criteria over qualitative criteria. Trees don't grow to the sky (maybe some do but most don't) and when everyone believes that all trees will probably grow to the sky, then the investor who dreams about quality, may be better off looking at current prices for a more rational decision to take profit. Same thing for cut-loss selling, if Mr Market re-rates a stock's prospects and the price drops, it is might be better to use a cut loss % as that will reflect Mr Market's decision making process as normally, it is very brutal when it turns and do a re-rating. Generally, bad things happen after bad things happened. The tech boom of 2020/2021 to 2022 crash was a good reflection

[i4value]

The challenge is not identifying the underpriced stocks. It is when to sell that is a bigger problem. No doubt it is good problem to have but I must admit that I am not sure whether I have found a balance between selling too early or missing the boat.