Mobile Telesystems (NYSE: MBT) is the biggest stock holdings I had for over two years and it is also the first stock that I bought in my life
My absolute gain for this stock is about 34.15%
A review of the earnings and revenue growth of MBT indicated an overvaluation at 11 USD and above
My Two Years Experience With Mobile Telesystems
Mobile Telesystems is the biggest stock holdings that I had for over two years.
I had grown to be quite emotionally attached to it because it was actually the first stock that I have bought in my life.
Luckily, I know that to be a good investor, we cannot be emotionally attached to our stock.
I Bought it on 2 February 2015, slowly accumulated some more along the way and finally divested it fully in three phases– 600 units on 30 January 2017 at 10.40 USD, 875 units on 18 March 2017 at 10.60 USD and finally 2625 units on 22 March 2017 at 11.17 USD.
The concept here is that when I sell a stock, I should start selling 25% of my holdings when it is between 75% to 100% of my target price. This is applying the concept of margin of safety because my valuation could be wrong and sell via averaging up is a solution. In fact, this is what Warren Buffett does as well.
My average cost for it inclusive of dividends and options premium is about 8.14 USD.
Thus my absolute gain for this stock is about 34.15%– taking into account my average cost and average selling price.
If you are not acquainted with this stock, I suggest you read my previous articles first on MBT before proceeding further. 🙂
35% Potential Capital Gain In The Year 2015
Image source: Yahoo Finance
I first initiated a position in MBT on 5 February 2015 at the price of 9.40 USD.
By 12 May 2015, it went up to a price of 12.77 USD– a price that up till today– two years later, have not reached!
That is about 35% increase in price in about 3 months time. More than my absolute gain for this stock at 34.15%, and it took me two years to achieve it.
Looking back, let us examine further on what I did right and what I did wrong.
The goal for me is that in moving forward, I will not make the same mistake again.
Why I Did Not Sell MBT At 35% Capital Gain In 3 Months At 12.77 USD
If you have been investing for quite some time, you will understand that greed is an investor’s worst enemy.
Allow me to explain.
During February 2015, I did my evaluation of MBT and I valued it using the facts at that point in time which concluded it to be worth about 12-13 USD.
Now, we know that intrinsic value is a fuzzy subject.
Precisely because I anchored my selling price to my valuation of the upper limit of above 13 USD back then that I did not sell it at near 12.77 USD.
Accompanying this, of course, is Mr Greed– an investor’s worst enemy– telling me that I could have earned much higher if I let it rally up further. Which of course did not happen.
My Next Mistake
Because MBT went up so much in about three months time back in 2015, I thought that this stock is really good and the market is finally realising its true value.
I assumed that MBT will rally further in the upcoming months after May 2015.
That was when I began to assume that– and even hope that MBT will rally up until 15 or even 20 USD!
Based on this assumption, I sold 9 contracts of a 1 month put for MBT at the strike price of 11 USD for 19 June 2015. I achieved 2.11% return in 1 month.
However, in 1 month time on 19 June 2015, the market price of MBT is 10.19 USD and I was forced to buy MBT at 11 USD. Giving me a paper loss of 7.36% to get 2.11% of return in 1 month.
The mindset for this was that I would not mind buying MBT at 11 USD because the market seemed to be looking favourable on this stock.
That was my big mistake!
I had forgotten the fundamental truth that in any kind of investments, be it options or stocks, a margin of safety is crucial!
I should not have sold a put for MBT at the strike price of 11 USD to get a higher return (greed plays a part, of course) of 2.11% in 1 month. I should have given a higher margin of safety for it.
I should have sold a put at 10 USD. If not, I should not have touched the options contract for that month.
Emotions and irrational expectations of the market played a huge role in this mistake of mine.
I Still Did Not Learn From My Mistake
After having to increase my average cost of buying MBT because I was exercised by my previous options selling at 11 USD, I sold another put for 8 contracts for 17 July 2015 at 9 USD.
Little did I know I was catching a falling knife.
At 17 July 2015, the price of MBT was 8.31 USD.
Again, for a 2.64% return in that month, I made a paper loss of 7.78%.
The mistake here I admit, is also greed.
In my mind, I was taking advantage of the volatility of MBT by selling a put option and earning a high premium of 2.64% in one month.
The truth is that once again, I did not give enough margin of safety for selling the put option for that month.
For a 2.64% return, I took a paper loss of 7.78%.
59% Paper Loss In 8 Months Time
Image Source: Wikimedia
The price of MBT kept on falling from a high of 12.77 on 12 May 2015 to 5.22 USD on 8 January 2016– falling 59% in market value in the process.
Here Is My Biggest Mistake Of All (And What I Did Right)
When I lost so much money (unrealized loss) on my investments, I learnt a few key lessons:
1) The market value and the intrinsic value of a stock are two separate matters. Realising how to differentiate those two and having conviction in our thesis is key to sustainably profiting from the market.
2) Understanding our investments is key because it forms the fundamental aspect of exercising good judgement.
3) If we have conviction in our thesis and in our valuation of a particular stock, when the price is depressed and fear is at its highest, buy much more of that stock! (When it rains gold, grab a buckle, not a thimble!)
4) The margin of safety concept is so important and can never be underestimated.
I had already known number 1 and 2 back then– and fortunately– applied it well. That resulted in me holding MBT up till recently when I sold it at a gain of 34.15%. This is what I did right.
I had already known number 3 and number 4 back then but I did not apply it. This is what I did wrong.
I had conviction in MBT despite what my peers had said about the dangers of investing in Russia.
My mistake was that I gave in to the fear of not buying more of MBT –when the market was mispricing it as compared to its intrinsic value (a similar mistake I made with Keppel Corporation). I had forgotten that fear is an investor’s best friend.
Have I Learnt My Mistake? Yes!
The image below is a screenshot taken from my brokerage account. It shows that I purchased 1000 units of MBT on 19 September 2016 at the price of 7.70 USD. That is below my average cost of my MBT purchase back then. This additional purchase formed a good 25% of the profit that I had received overall for MBT.
Yes, I have learnt from my mistake.
Throughout this two years, I have learnt a lot in terms of managing my emotional temperament and skills in investing as well as using options as an additional tool to increase my annualised return in investments.
As of 1 April 2017, my annualised return on my United States Stock portfolio since 5 February 2015 is 27.17%.
This is in comparison with S&P 500 annual return of the same period of 6.79%.
Looking back, I have outperformed the S&P 500 by 20.38% since 2 February 2015 despite all my mistakes.
The stock market being an emotional creature which even the best investors find it impossible to predict, I do not plan on predicting it.
But I plan on sustainably profiting from it in the future as I have done in the past by focusing on the business results of a particular company instead of its market prices. And of course, be greedy when others are fearful and be fearful when others are greedy.
Disclosure: I am long on MBT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: The information provided is for general information purposes only and is not intended to be a personalised investment or financial advice.
Important: Please read my full disclaimer.
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CHRIS LEE SUSANTO
Chris is the founder of Re-ThinkWealth. A blog that focuses on personal finance self-improvement, investments, and investor psychology.
Since early 2015, he manages money and invests it in Singapore and United States equities and options achieving above market return.
His investing strategy is using the core theory of inversion. Inversion meaning that in every investing idea, we have to scrutinise on why it would fail.
This will result in us being more conservative, and being conservative is the key to protecting and grow wealth in the long run.
He has two areas in his life that he is particularly passionate about – the first is making great investments through a robust analytical process, and the second is growing his family business at www.IMMPrinting.com which creates Quality Retail Packaging for companies like Bread Talk.
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