As I previously opened up about my horrific Valeant Pharmaceuticals story, I committed to compiling a list of the lessons I’ve learned over the course of my holding period of the infamous VRX shares.
So, here’s a list of what I’ve learned – and how, by now knowing these things, I am ultimately a better investor despite the loss.
Only invest money that you are 100% comfortable with losing 100% of. Because chances are, when you’re speculating, you could very well lose your entire investment. Come to terms with what you may be doing is speculating and not investing.
Set a stop-loss limit sale on a “fun money” growth stock. Sure, you may tell yourself (like I did, a thousand times) that the stock will bounce back. But it’s just as, if not more, easy for the price to continue declining than it is to jump back up.
If you realize you made a mistake when your investment has dropped 50%+, then sell and be done with it.
Sometimes it’s easier to reallocate your capital into a better-positioned stock to make up the loss you’ve incurred. Take advantage of that realization.
Don’t invest in an equity that doesn’t return cash in the form of a distribution. While you may be down on an investment for a long time, a dividend will at least pay you to wait as you decide what you’ll be doing with the stock or holding it. I also like to believe it indicates shareholder appreciation from the company / management. It’s also much easier to stomach a huge decline in your stock’s market value with a dividend.
There were a ton of warning signs throughout my holding term, and I heeded none of them; too stuck in the DGI mentality of “Hold the stock as it comes back up” – but it never came back up. And worse of all, I never received a dividend from the company. It was not a DGI stock and so it should not follow DGI rules.
Does anyone else have a horror story investment they’d like to share? Let me know in the comments section.