My BIGGEST Mistake: Don’t Make This One!

Hi Everyone,

If you’ve been following my posts, you know I’ve been on a four-year journey in value investing—learning the ropes, honing my skills, and diving deep into what value investing truly means.

As 2024 draws to a close and we prepare to step into 2025, I’ve been reflecting on the mistakes I’ve made and how I can improve my analysis in selecting the right businesses. Today, I want to share my biggest mistake with you, in hopes that it might help you avoid making the same error.

My Biggest Mistake

When I first started investing, I, like many others, was tempted by the allure of quick profits and fast cash. During a bullish market, it’s easy to get caught up in the fear of missing out (FOMO), diving into stocks that might be great businesses but are purchased at the wrong valuation.

Case in Point: Alibaba (BABA)Let’s talk about my experience with Alibaba. I don’t regret investing in this business—it’s a fantastic company. But I regret buying it at the wrong valuation. Back in 2021, Alibaba was trading at $319 per share. If I had told you then that its price would drop to $85, you’d probably have called me crazy and rushed to buy it. But here’s the truth: it was foolish of me to invest at $319 without considering the margin of safety.

Alibaba had great fundamentals: strong cash flow, an excellent Return on Invested Capital (ROIC), and a solid business model. However, the valuation was inflated, and when the news turned sour, everything crumbled. This leads me to my second mistake.

Mistake #2: Poor Stock Weightage Allocation

At the time, Alibaba made up nearly 50% of my entire portfolio. I kept averaging down without properly managing my funds or stock weightage. This lack of diversification became a significant drawdown, and I had to endure the consequences. Between 2023 and 2024, I learned to balance my portfolio better, focusing on steady growth and wealth-building rather than aiming for the moon.

Lessons to Carry into 2025

As my knowledge has grown, I’ve developed my own Discounted Cash Flow (DCF) model to better value stock prices. This has helped me internalize Warren Buffett’s famous quote: “Price is what you pay; value is what you get.”

Here are some key takeaways I’ll be applying going forward:

Look Beyond the Price: While valuation matters, certain businesses are worth paying a reasonable premium for, provided you’ve done your due diligence and considered a margin of safety.

Ask the Right Questions: Before investing, ask yourself: “Would I still buy this stock if the price were to go against me?” This helps ground your decisions in the business’s intrinsic value rather than market sentiment.

Focus on Decision Quality: It’s not just about finding the right stock but making sound decisions based on thorough analysis and clear principles.

2024 Year-End Reflections

I’m excited to share that my year-to-date Return on Investment (ROR) for 2024 stands at 24.85%. This is a significant improvement from when I first started, and I’m proud of the progress I’ve made.

To those of you who’ve had a fantastic year in investing, congratulations! For those who may be struggling, remember—it’s okay. Stick to a principle-driven and value-oriented process. Over time, you’ll begin to appreciate the journey and find joy in the investing process.

Looking Ahead

Next year, I’m launching an investing channel to share stock analyses and real-life experiences in investing. If you’ve enjoyed my content, I’d love to hear your feedback or suggestions for topics you’d like me to cover.

Thank you for taking the time to read this post. I appreciate your support!

Cheers,

Roy