Lesson’s I’ve Learned From Three Mistakes I Made
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
“A life spent making mistakes is not only more honorable, but more useful than a life spent doing nothing.” - George Bernard Shaw (1856 - 1950)
It’s probably not surprising that there are a lot of famous quotes out there on making mistakes. The general consensus is that mistakes are just part of life and even beneficial if you can learn something from them. In an effort to learn something from some of my recent less than stellar decisions I’m pointing them out in an effort to gain some lasting insight.
Being Too Greedy Cost Me a 30% Gain!
I’ve been following energy underdog Rex Energy (NASDAQ: REXX) for some time now. When I had the opportunity to add shares to my virtual “No Drip, No Mess” Portfolio I chose to write puts instead of buying shares outright. In my report I said that, “I think this underdog has the potential to fetch investors a healthy long term gain.” I figured I could write the put and pick up both shares and options income and just maybe repeat writing puts for a while and keep the income flowing. I was wrong; instead Rex’s Utica Shale position started to get noticed by analysts and shares soared by more than thirty percent since I wrote the put.
While the more than ten percent of options income was nice, it didn’t net me shares of a company I really wanted to own. Obviously in hindsight it would have been better to have bought at least some shares and saved put writing to add to the position.
Being Too Aggressive Cost Me a 20% Loss!
My wife and I just got our first family pet and I’ve been looking for investments to hedge against the added expenses that our little fur ball has incurred. I settled on PetMed Express (NASDAQ: PETS) because I liked their very generous dividend. Instead of either buying shares or writing out of the money puts like I’m known to do, I was aggressive and wrote in the money puts. I said that, “Usually when I write puts it is a strategy to acquire shares of a company a bit cheaper. In the case of PetMed Express we’re writing slightly in the money puts in an effort to bank some nice option premium on a fairly volatile small cap stock.”
While I banked a total of five and a half percent worth of options income, shares are down twenty percent from where I was required to buy shares. A bulk of that fall came from a poorly received earnings report which alone sent shares down by fifteen percent. If I were paying more attention I’d have waited the two weeks before earning before making the move. In hindsight I should have at least written the puts out of the money or bought a half a position before earnings. Next time I’ll be more careful.
Being Too Passive Cost Me 50% of My Option’s Premium!
When I decided that I wanted to own shares of Rogers (NYSE: RCI) I saw that I could write a $30 put for about $100 which was a nice chunk of change for such a steady performer. If successful I’d be picking up shares of a company that I said had, “done a great job at cleaning up the balance sheet and have been really boosting their dividend so that today shares yield a very generous 4.75% and they’ve improved so much that they make an excellent long-term investment.” Unfortunately, I got nowhere near that nice chunk of change I was hoping for.
When I went to actually write the puts the premium was falling as the shares were rising. I kept waiting and before long the premium was fifty percent less than what I’d wanted to receive. I was forced to accept what the market was offering because I was just waiting around to see if I could do better.
As I’ve analyzed the mistakes I’ve made it has enabled me to make adjustments going forward. When I was contemplating which utility to buy I found one that was just too cheap to ignore. That’s why I announced that Exelon (NYSE: EXC) was the one utility I was buying.
When I wrote up my thesis I thought about just being greedy and writing a put in hopes of getting shares just a bit cheaper. Instead of writing puts alone I also bought some shares so that I didn’t miss out in case the market realized that they were underpricing Exelon by nearly forty percent relative to their peers. That’s a mispricing I don't want to miss.
Another mistake I don’t want to make again is being overly aggressive. When I started watching Westport Innovation (NASDAQ: WPRT) shares were in the mid $30’s. Now that shares are down about thirty percent since I started watching them it’s time to add this emerging natural gas innovator to my portfolio. They’re growing their core medium duty truck business while expanding in all directions as natural gas engines begin to take off. I might not be buying at the bottom, but it’s a much better price than if I bought aggressively when I first started watching the company.
Mistakes that are educational can be worth making. In hindsight I’ve made a couple that I likely won’t make again. Learning from those mistakes is the key to invest better.
latimerburned owns shares of Westport Innovations and Rogers Communications (USA). The Motley Fool owns shares of Westport Innovations. Motley Fool newsletter services recommend Exelon, Rogers Communications (USA), and Westport Innovations. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.