Lots of popular companies have suffered a rough time this year. A few quick thoughts on how you could stop losing money through share-price disasters.
Terry Smith said in this recent podcast:
“The problem is most people don’t read the accounts”
Yes, annual reports are long and boring and so very few investors (both private and professional) read them. But lurking within a report’s small print could be signs of trouble, or at least points that do not sit quite right and require further investigation.
I looked at Avon Protection (AVON) and LoopUp (LOOP) for SharePad during January…
…and both companies raised questions about acquisitions. Perhaps looking at the accounts and thinking more about those acquisitions could have prompted an exit. AVON is down 64% and LOOP is down 79% YTD. (More on AVON here and LOOP here)
Asking tough questions about a business could also help minimise your losses.
Take Arcontech (ARC). This software business offered attractive accounts but the group’s services did not seem that special and underlying growth was very modest:
Maybe underlying growth was modest because the group’s services were not that special. Revenue warnings this year seemed to underline those not-so-special services and have left the shares down 55% YTD.
Or Boohoo (BOO). Did you ever consider the retailer’s margins might decline, especially given the high valuation?
BOO’s latest statement owned up to higher costs and lower margins. The shares are down 69% YTD.
Asking tough questions about shares you own may not prevent trouble occurring, but you may be able to recognise problems sooner and possibly alleviate any losses. Within my portfolio, I worry about competition at Tristel, whether Mincon has a moat and whether City of London Investment is stuck in its ways.
Looking at the accounts and questioning your holdings helps build independent thinking. Perhaps your losses can be minimised by doing your own research and becoming less dependent on other people.
Best of the Best (BOTB) is a prime example. The signs of lower profits were there…
…and a few months later came the profit warning and Finncap downgrade:
BOTB is down 60% YTD.
Maybe if your portfolio suffered this year, now could be a good time to go through each share you own and identify/eject the potential ‘timebombs’ that might explode during 2022 and beyond.
I am busy double-checking all my shares for a 2021 blog round up (here is the 2020 version). I find revisiting every holding at this time of year very helpful.
Thoughts on potential stock disasters for 2022 are more than welcome!