Throughout my investing career, I have made mistakes. We all have. Nobody in the world of small caps bats 100%. The important thing is that you learn from those mistakes and adapt your strategy accordingly.
I have compiled a short list of rules that I like to follow to help avoid making the same mistakes twice.
1) ALWAYS BUY WITH CONVICTION
Let’s say someone recommends a great, fundamentally sound company to you. You invest in it, but deep down, you don’t actually believe in the fundamentals and long-term value yourself. Now let’s imagine the stock starts to drop…. For an investor who has done a full analysis of the company and DOES have a strong conviction about the stock, they are not going to sell. They might even buy more because they believe in the long term value of their investment. For the investor with a weak conviction, they have no reason to hold the stock and will likely end up selling into weakness because of their lack of conviction.
So if you aren’t going to buy a stock with conviction, then just don’t buy it at all.
2) ALWAYS DO YOUR OWN DUE DILIGENCE (DYODD)
Browsing through online forums and forming your own opinions about a company based on other people’s comments, does not count as PROPER due diligence. Often times, people will blindly invest into stocks based on recommendations from things they have read on online message boards. This is VERY DANGEROUS. These message boards are often filled with biased comments from investors who are trying to promote their own holdings and get others to buy in at higher prices.
Always do your own due diligence.
3) LEOPARDS DON'T CHANGE THEIR SPOTS
Pump and dump guys will always be pump and dump guys. Look for stock charts that have fallen off of cliffs and have been dead ever since. Stay away from groups associated with these deals. The applies in reverse to the best managers inthe business. Make yourself aware of the guys who have been serially successful in their respective industries as they are more likely to repeat that success again in the future. In the world of junior mining, guys like Richard Warke, Ross Beaty, and Robert Friedland, to name just a few.
Always keep an eye on what the top dogs are doing. Avoid the snakes. Follow the smart money.