It's normal to make more than a few flubs while investing, especially when you're new. At the same time, we owe it to ourselves to be humble and to recognize when we've made a mistake with our finances. There's no point in beating yourself up, but there's a big point to understanding what went wrong and how to do it better the next time -- after all, there's money on the line.
Not every mistake has to be a catastrophe, obviously. But it's still worth ironing out the kinks in your investing habits, especially if you plan to be investing for decades to come. With that in mind, I'd like to share three examples of less-serious oversights I made in 2024 so that you can (hopefully) avoid them in your own investing life.
1. Not updating my investment thesis in a timely fashion
One of my rules is that I need to have a strong and pithy investment thesis for every investment I make, and also for any investment that I write about. But an investment thesis simply can't be a monolith that stands unchanged over time, as markets are constantly changing, and businesses are constantly updating their strategies so as to compete more effectively both today and in the future. The more complicated the industry and the more complicated the company, the more moving parts there are for the investor to take into account when formulating their thesis, which entails a larger responsibility to update the thesis more frequently.
Even when broadly upholding that responsibility, it's still very possible to miss the forest for the trees, as I did with Pfizer (PFE -0.51%)
Since roughly 2020, my investment thesis called for Pfizer to be a favorable stock to buy and hold on account of its large portfolio of pharmaceuticals and its demonstrated competency in research and development (R&D), as reflected by its massive pipeline. Nonetheless, the stock is down by 45% over the last three years, badly underperforming the market's gain of 31%. Clearly something wasn't working, but I kept circling back to the same factors that were originally in my investment thesis, finding them to still be sound.
Then, late in 2024, an activist investing group called Starboard Value said that they'd taken a $1 billion stake in Pfizer with the goal of improving the company's efficiency. Starboard published a report outlining many areas where it thought that the company was struggling, including specifically its R&D efficiency and its capital allocation strategy.
Reading the report, I was gobsmacked; the activist group had essentially explained to me quite fastidiously that my investment thesis was no longer accurate, even though it had been at one time. I immediately changed my stance on the stock to be a bit more bearish.
One lesson here is to listen to any nagging feelings you have about a stock and its performance. If your investment thesis still seems true on the surface in the face of a company's difficulties, dig deeper into the details, and be ready to update your mental model accordingly.
2. Assuming the best outcome would occur
Another subtle investing mistake I made pertains to Costco Wholesale, (COST 0.37%) which to this day is my single most favorite investment.
In late 2023, Costco's CEO announced he'd be retiring, and that he'd be replaced in the following year by Ron Vachris, who was the company's president at the time, and an employee for 40 years. Given Costco's tradition of successfully promoting leaders from within, I reacted positively to the news, and thought nothing more it. But that was a mistake, even if it didn't carry negative consequences.
My level of trust in the board of directors was and still is fairly high. Nothing has gone wrong with Costco under its new management. I'll buy more shares as I'm able to.
Still, if you don't perform any due diligence when you know there has been a major change with one of your investments, like a new CEO, it's much harder to build the conviction necessary to hold onto your shares for the longer periods of time where you'll see the largest growth.
Think about it. Psychologically, it's much better to have a hunch about which new factor is causing things to go right -- or wrong -- than it is to look at your returns and feel confused about what's happening. Checking the details is how to become a better investor.
3. Complacency
I've held Apple (AAPL 1.68%) for quite some time now. Everyone knows that Apple will be selling iPhones, MacBooks, and iCloud subscriptions until the end of time, not to mention a bunch of other products and services. Its brand is most likely the most valuable on the planet, and it has an endless runway for more growth.
But does the company's actual performance bear out all of this common "knowledge" that formed the basis for my investment in the stock?
In a word, no. Over the last 10 years, its quarterly revenue has risen by 63.6%, reaching $94.9 billion, and its free cash flow (FCF) has grown by 43.9%, reaching $23.9 billion.
Those figures are impressive for a gargantuan business to be sure. But in relative terms, there are many other companies that are expanding at a much faster pace. Similarly, it is very likely that Apple is facing some undesirable headwinds due to its comprehensive penetration of its core markets like smartphones, which are also highly competitive.
My mistake here was to assume that the boom times both could and would continue forever with Apple. There is no guarantee that the stock will fall, and it's still a favorable investment. But the only way to avoid the unanticipated consequences of complacency is to invest some effort and do the diligence even if there are not any major changes happening in any given quarter, so that's what I'll be doing from now on with this stock.
