Our best investment mistakes and our best learnings

At our Value Investing Conference ValueTag in Frankfurt, we talked about our best investment mistakes and learnings in order to learn from each other. In this article you can participate in our exchange:

The CEO is often the best salesman

CEOs and their announcements, their optimism and especially their sales talent can sometimes be decisive for an investment. But this can also backfire: Over time, a positive impression can turn out to be more of an appearance than an existence. Instead of really delivering after big announcements, such announcements can also turn out to be a boasting. Therefore, it is important to keep a critical distance to the management. Announcements should be critically reviewed rather than simply trusted. Otherwise you run the risk of making an investment mistake.

When a big customer vanishes, it can hurt a lot

Customer or supplier dependency can become a major problem for a company. If a large part of the turnover depends on a customer or the production depends on a certain supplier, this can have strong negative consequences. Suppliers can get into problems or try to exploit their position of power. Large customers can break away and thus a large part of the turnover can be lost. One example is the semiconductor manufacturer Dialog Semiconductor, which was heavily dependent on Apple:

The brand lives on the quality of the people behind it

A brand alone is not a sufficiently good reason for an investment. Much more important is the quality of the company behind the brand. Important questions here are, for example: How cleverly does the management act? Do they manage to limit the products cleverly? Is the creative performance good? Is the capital allocated sensibly?

The moat of a brand is often much smaller than expected. And this moat must always be defended by good management and good employees.

The success of a brand also depends on new customer cohorts who are willing to buy it. If a fashion brand has a strong position in the age group over 65, but the 50 to 60-year olds would not wear the brand, this can become a big problem for the company and the investor.

Speed can be an investment mistake

Value investors tend to invest in companies that are unloved on the stock market and whose chart often looks terrible. One example is the jewelry and watch manufacturer Fossil:

Such companies can be a good investment if you can wait until the sentiment is really bad. Or in other words: until the capitulation has been achieved. If you get involved beforehand, this can often be an investment mistake that costs return.

Cobbler, stick to your last

In the context of investing, there is often talk of an art or a craft. To be good at investing, you need a lot of work of your own. It usually turns out to be a serious mistake to leave out your own analysis and simply “buy a good stock on call”.

It can also quickly turn out to be a mistake to fish for investments outside one’s own (regional) competence circle. It can definitely help to stay within one’s own competence circle in order to invest successfully in the long term and to reduce investment errors.

Just trusting numbers can become an investment mistake

If you base your analysis only on quantitative factors and thus trust the figures alone, this can also be an investment mistake. It is just as important to include qualitative factors. Questions are here for example: How good is the management? Is the management integer? What is the corporate culture like?

Often it is also important to listen to your gut feeling. If the gut rebels at an investment, it may be better to distance yourself from it.

The greatest assets are useless …

…if they don’t drop any cash. Because the cash burn destroys the value of assets in the long run. An investment in assets that look very inexpensive can thus become an expensive investment mistake.

Disclaimer: The companies mentioned here serve only as a representative example. Please also note our disclaimer.

Picture source: Pawel Janiak on Unsplash