Monday, November 5, 2007

ZED - Sold & Lesson Learned

I recently sold my position in ZED for about a 30% loss. If you’ve been following this blog for any length of time you’ll know that ZED accounts for only 0.4% of my portfolio so selling at a 30% loss will certainly not affect my portfolio in any meaningful way. However, my brief foray into speculative, cyclical, micro-caps has taught me a couple valuable lessons.

1.I should stick to large companies that I’m able to properly analyze. Before buying ZED I used the same techniques that I use for large caps. However, with small caps the earnings are often much more volatile and the accuracy of earning estimates is often low as there are usually very few analysts following each name.

2.I have been developing and using a value oriented dividend growth based investment strategy for the past 8 years that has been working successfully for me. I should stick with what I know and continue to invest in what I’m comfortable and successful at.


MG (moneygardener) said...

I agree wtih your assessment here and I have often found myself in this exact situation. Valuing companies is much easier when their earnings and dividends are relatively stable.

It is often tempting to take on some more risk though, with smaller portions of one's capital. I have been tempted in the past but I have not yet embarked on an investment in a speculative, small cap name.

Unknown said...

I also aggree and think your last sentence says it all!

Instead of going into penny stocks in search of higher gains, I'd rather choose a medium sized business that is growing very nicely and then go get some LONG TERM options (say 2010 call options). That way I've got the long time frame and a stock I know and understand but also leveraged to take advantage of the upside potential and can still get awesome returns.


Lesson learned the hard way.