"1. What is your best ever long term investment 2. What is your...

"1. What is your best ever long term investment
2. What is your worst ever investment
3. What is the best timing ever achieved
4. What is the worst timing you ever suffered"


@daicosisgod ,

Apologies for not replying until now, but I missed this most of yours at the time.

1. Best Long-Term Investment:

It is hard to say which has been my best ever long-term investment, because while it is quite easy to rank my holdings in terms of % gain, I think that there is more to the best investment, after making some qualitative adjustments, such as business risk and volatility.

For example, by far my best investment in raw % gain terms has been CSL, followed by Macquarie Bank. But if I look back and think how those two companies have evolved over the plus-20 years that I've owned their shares - and, importantly, the possible alternative histories that could have transpired (i.e., the unseen risks) - then I think that there was a element of luck involved in those successful investment.

So, if I was to "quality-adjust" the investment returns across my portfolio, then I'd say that (probably in order) REH, ARB, ASX, BRG, WES, TCL and, yes, even RHC despite its poor share price performance in recent months, are my "best" long-term investments... not because they happened to provide the greatest % return, but because at the time of purchasing those stocks, I feel I understood their business models, and the drivers of their earnings, much better than I did for CSL and MQG, i.e., in risk-adjusted terms, I consider REH was a superior investment to CSL, even though CSL has risen some ~30-fold, compared to REH's ~20-fold rise.


2. Worst Ever Investment

There are many that I can recall. [*]

The first really major investing lesson I learnt was in the late 1990s from a little medical research company called Polartechnics (PLT was the stock code at the time). I succumbed to the beguiling promotions of the stock by a stockbroker who was pushing the stock idea at the time (while at the same time selling his stock in anticipation of a capital raising, I some time later learnt). PLT spent something like 10 years trying to develop a device for detecting cervical cancer, needing to raise equity capital at various intervals along the way. After getting diluted twice (the capital raising mechanisms, as they invariably do for micro-cap businesses, took the form of selective placements at deep discounts to the prevailing price... to the "mates" of the broker, no doubt, at the expense of small, loyal shareholders), I sold at a loss. Fortunately, I didn't have much capital at the time, so the nominal value of my losses were small (maybe a thousand dollars), but the value of the lesson I learnt from the experience went on to be worth many hundreds of thousands of dollars, I reckon.

But there were many other investing errors made, mostly because I didn't really fully understand the business model involved, or spend enough time thinking about the risks:

2008: Fairfax Group (FXJ) - I was too slow to recognise the demise of print media

2008: Australian Wheat Board (AWB) - The IRAQ wheat supply scandal

2009: Boral (BLD) - Tried to "time" the cycle; failed to appreciate the capital intensity

2009: QBE Insurance Group (QBE) - Didn't really understand the business and the rising risks.

2010: Skilled Group (SKE) - Transfer of management to son of founder; poor capital allocation decisions followed. Was subsequently acquired.

2009: Noni B (NBL) - Transfer of management to sons of founder; poor capital allocation decisions followed. Also, I didn't appreciate the threats to bricks 'n mortar retailing

2010: Coffey (COF) - Roll-up story that went wrong. Was subsequently acquired.

2012: Talent Two (TWO) - Didn't really understand the business or the risks

2013: Salmat (SLM) - Didn't understand the risks

2013: WHK Howarth (WHG) - This one was a real ego bruiser. The business basically imploded overnight (although the warnings signs were there to see beforehand)

2017: AGL - Failed to see the regulatory stick coming



3. Best timing achieved:

While I don't try to "time" my investments with a view to buying right at their absolute bottoms (instead, I simply buy when I find a business to be sufficiently undervalued).

So, my best-timed investments are the same ones as those discussed under 1. above... although one could argue that those were more a case of having acquired them a long time ago, and then held them since, rather than "timing", per se.

But in terms of jagging 'em just right, then I don't think I could have done any better than LYL, I think. Another poster (@MarsC) and I were buying LYL in 2014/2015 when the share price around $1.20 to $1.40, which corresponded to a market cap of ~$50m, backed by almost $45m worth of Current Assets Less Total Liabilities. This was a business that, in the preceding decade generated average FCF of $12mpa (it was never FCF negative, and the lowest level of FCF was $4.2m, in 2008). So you were effectively paying an EV of circa $5m for $12m pa of FCF. This kind of gift is very rarely offered by the market, so needless to say, I bought as many shares as I was able to do. For a period of about 9 months, my full-time job between 10:00am and 4:00pm was buying LYL shares.

In the 4 years since then LYL has generated a cumulative $63m in FCF... a not too shabby financial return on an effective $5m investment.

(Lesson learnt here: these sorts of opportunities present themselves in maybe, once every 6 or 7 years. So when they do, one should seize them.)

SDI in 2012 was a somewhat similar story, although that return outcome was driven by a bit of luck in the form of favourable exchange rate movements.


4. Worst timing suffered:

As I say, timing is not really the framework by which I measure my investing mistakes; instead, where I make losses is because I made some fundamental error myself. And, as you can see from 2. above, there are plenty of those. And even as I write this, might even be making the same mistake with a certain stock I currently hold, namely IFL


[*] It strikes me as being quite worthy of remark that, despite the numerous really dumb investing mistakes I've made over my investing career, investing in the stock market has generated more wealth for my family than I could ever have imagined possible when I started off on my investing journey. And that's not because I consider myself to be some sort of gun trader; far from it. Rather, I think it is testimony to the power of the force of compounding investment returns and it is also demonstration of the well-proven thesis of buying high-quality companies at reasonable prices, and then holding them for the long-term.