Three lessons from two failures

When the share price goes down instead of up, a post mortem can be revealing

- GRAHAM WITCOMB

It is impossible to be an investor and not make mistakes. The aim should be to reduce rather than eliminate them. Because humans learn more from failure than success, this requires a painful examination of what went wrong, starting with a question: How can you tell whether an investing decision was wrong?

Between our 2014 upgrade to buy and August’s downgrade to sell, the share price of IVF provider Virtus halved and Monash IVF’s dropped 43%.

It seems a convincing argument, until you know that since first recommending Sydney Airport as a buy when it listed in 2002, there have been three share price declines of 20% or more and the stock was underwater for six years. Having never sold it, we’ve enjoyed a ninefold increase in share price since.

Share price performance is one thing; business performance is quite another. The difference between Sydney Airport and our IVF providers is that the latter haven’t unfolded as we expected, in terms of their share prices and their underlying businesses.

So where did we go wrong and what did we learn?

1THERE’S MORE TO STOCK PICKING THAN VALUATION