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The great baseball player Yogi Berra once said, “Losing is a learning experience. It teaches you humility. It teaches you to work harder. It is also a powerful motivator.” These words from the highly rated sports star are worth keeping in mind for investors, especially at a time when many will be looking at the performance of the portfolio over the past year.
There are essential lessons that can be learned from investments that have otherwise been big losers, and applying this knowledge will often put you in a better position to win in the future. With that in mind, we asked three Motley Fool contributors to profile their worst performing stocks of 2020: Eros STX Global (NYSE: ESGC), Norwegian Cruise Lines (NASDAQ: NCLH), and AT&T (NYSE: T).
See how these companies burned their otherwise successful investors – and if the experience changed their theses about stocks and overall investment strategies.
Image source: Getty Images.
A speculative streaming game that has yet to bear fruit
Keith Noonan (Eros STX Global): When I first heard about Eros STX Global, I was immediately intrigued. A little research revealed that the “Netflix of India ”, sometimes used to describe the company, was probably too complimentary, but the stock still had appeal as a high-risk, high-return growth game.
It is a small-cap company valued at around $ 400 million. It pursues costly efforts such as building a streaming platform and producing movies and TV series that can compare to the outputs of resource-rich competitors. It is also trying to do this at a time when the pricing power of a monthly streaming service in the Indian market is quite low compared to Western markets. However, these daunting prospects start to look a little different when viewed against the backdrop of the incredible growth potential of the entertainment industry in the country.
I bought the Eros STX stock knowing it would be one of the riskiest investments in my portfolio, and today is my worst return of the year – with stocks falling by around 25%. All things considered, it could have been a lot worse, although I don’t rule out the possibility that the stock may fall even further.
Eros is still a speculative stock with a number of issues that investors might worry about. But since that’s a relatively small part of my portfolio, my stocks losing a quarter of their value don’t hurt too much. I have other stocks that have done pretty well this year, and I’m generally willing to allow time for the high-risk growth games to unfold.
I’ll be sticking with Eros STX, but I recently sold stocks at a loss to help lower my capital gains taxes for the year. There didn’t seem to be a catalyst for Eros stock to show up in the short term, and I think there’s a good chance I could buy stocks for roughly the same (or cheaper) price over the years. next months. Normally I prefer to hold stocks for the long term, but I will also take advantage of tax benefits when the opportunity arises.
Come the new year, I will buy back Eros STX shares again. All of the same risk factors remain, but the company’s trading position and its potential to generate fantastic returns haven’t really changed either. I have room for some high risk investments in my portfolio, as the big wins of the winners will normally compensate more than the losers. This is a strategy that I will continue to use, although it also means that some bets will inevitably result in big losses.
The market has a way to keep us all humble
Chuck Saletta (Norwegian Cruise Lines): My biggest loser in 2020 has finally been Norwegian Cruise Lines. This loss was brought on by a perfect storm: the coronavirus pandemic and panic from both the market and my broker. This panic turned what would have been a surviving decline into a forced position near the bottom of the early 2020 stock market crash, earning me a loss greater than my initial investment.
Prior to the coronavirus pandemic, Norwegian Cruise Lines looked like a reasonably priced vacation company ready to capitalize on the world’s aging population. So I opened an options position with the company, looking to take advantage of these long-term demographic trends.
When the first news of COVID-19 surfaced, I assumed that cruise lines would be able to deal with it because they had other communicable diseases. After all, cruise ship illnesses were pretty common before, and the industry had always found a way to cope, adapt, and survive. As a result, I made the decision to hold on, crouch down and believe that the adjustments I made to my options account to make it more resilient to slowdowns would allow it to survive this one.
The problem was that my adjustments were based on what turned out to be a flawed assumption: that the investment grade bond market would continue to function in the event of a stock market crash. The adjustments I had made were based on having these types of bonds in the same account as my options, both to reduce volatility and to provide an asset that is more easily salable in a market panic. Unfortunately, when the economy began to shut down in an attempt to combat the spread of the virus, the bond market froze as well.
In the midst of the panic, while I could liquidate the bonds of some of the strongest companies I owned, for others, I couldn’t even get an offer to sell at. all price. And in between those two extremes, I found that the only willing buyers were offering prices over 30% lower than recent market prices.
Also, as the market collapsed and cruise lines were hit especially hard when forced to stop sailing, my broker increased his margin requirement on Norwegian Cruise Lines. It made it more expensive for me to hold my current position, just as the value of this account was booming and I couldn’t liquidate my supposedly “safer” investments to raise cash. As a result, when the inevitable margin call arose, I was forced to liquidate my Norwegian Cruise Lines position to remain solvent.
As I had hoped, Norwegian Cruise Lines has staged a comeback since then, as the path to COVID-19 treatment became clearer. Unfortunately for me, having been forced to leave my post, I did not participate in this recovery.
The lesson I learned from this debacle: No matter how well you prepare, using the margin adds risk that can force you to make decisions that you wouldn’t have made otherwise. Avoid it entirely and you won’t have to deal with these risks at all.
AT&T is approaching sunrise if necessary
James Brumley (AT&T): I’ve owned AT&T for years now, primarily for the dividend. I’m still happy with that in this regard, despite the recent decision not to increase payouts for the coming year, as the dividend itself is still not in jeopardy. The company can more than afford to keep paying the $ 2.08 per share it paid out during 2020, when it would do some things in 2021.
Of course, few other investors see things from the same optimistic perspective. The stock is on track for the end of 2020, down 20%, continuing the weakness that took shape in 2017.
The DIRECTV conundrum elicits most of this doubt, although I have to wonder: do people now realize AT&T has underinvested in 5G compared to its telecom rival Verizon (NYSE: VZ), and underestimated the share of a competitor T-Mobile United States (NASDAQ: TMUS) would once become united with Sprint? T-Mobile continued to lead the nation’s wireless industry in the third quarter, with the highest number of net customer additions.
AT & T’s fledgling streaming service HBO Max isn’t pushing it out of the park either. A relatively modest 12.6 million subscribers were signed earlier this month, following its launch in late May. Comcastof (NASDAQ: CMCSA) Peacock was launched around the same time and already has 26 million regular observers. Walt disneyof (NYSE: DIS) Disney + has nearly 87 million subscribers on board after it went live just over a year ago.
Perhaps worse, most of these HBO Max users might not be paying for it. A large portion of them are probably eligible for free access.
Despite all of these issues, I’m not interested in losing my stake in AT&T … especially now when things are about to get better.
The potential partial sale of DIRECTV has a lot to do with this position. While the company is certain to suffer a considerable loss on the half it hopes to offload, this is a step in the right direction. Maybe DIRECTV can be fixed and start adding pay cable customers, but it has become pretty clear that AT&T is not the owner to make this happen. This sale will save AT&T the time and resources to do more successful things, like developing more and better 5G offerings.
As for HBO Max, it is not yet a powerful streaming platform and may never be. As I have suggested several times, however, this is not its value to AT&T. HBO Max is a tool for acquiring and retaining customers. AT&T needs a little time to figure out how best to apply that leverage, but it’s on the radar.
All of these efforts are proceeding at an extremely slow pace. But a light is finally starting to shine at the end of the tunnel, which leads me to believe that this title will start to unwind the losses suffered over the past three years. It will continue to pay its dividend in the interim, which for newcomers means a good high yield of 6.8%.
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