A part of growing and learning as an investor is to admit your mistakes. I know of one well-known manager who used to keep a display of stock certificates outside his office that included his ideas that did not work. He could not enter his office without seeing them; they were a constant reminder of what went wrong.
I've certainly made my share of mistakes, and started off 2017 with a doozy. That's what you sometimes get when the bosses ask a deep-value investor for his best idea for the coming year. I knew it was ugly when I wrote it; I knew that most would cringe, and I was at least right about that. Late last December, I named Ruby Tuesday (RT) as my best idea for 2017. It was not because I thought that the struggling chain would turn around its restaurant operations completely; it had tried nearly everything through the years to do so, including menu changes, remodeling, promotions, you name it. I thought it could show some improvement in the numbers, however small. I also believed that no matter what, shares were cheap from an asset perspective, specifically company-owned real estate. I thought that perhaps the markets were undervaluing the total package and that the real estate might be appealing to someone. I thought the stock potentially could double over the year, from the $3.20 level where it was trading at the time.
Ruby Tuesday's restaurant operations did not improve all that much over the year. However, an acquirer, NRD Capital, stepped forward in October and offered $2.40 a share, which represented a 21% premium to the price at that time. That disappointing offer, which was accepted by the company, was 25% less than when my column ran.
The lesson here is that assets of a distressed company may fetch distressed prices; in this case, beggars could not be choosers, and Ruby Tuesday accepted the low-ball offer because it may have believed it did not have much of a choice. I've been known to become too enamored with real estate assets, and in this case, it did not pay off.
I thought the merger between Farmland Partners Inc. (FPI) and American Farmland, which closed in early February and formed the largest publicly traded farmland REIT, would be a positive. While I consider this a long-term holding and am reinvesting the ample 5.4% dividend, shares are down about 13% since the merger closed. While American Farmland added some higher-quality land and crops to the mix, investors have remained skeptical about the company's ability to maintain the dividend. While I am not ready to declare this a total mistake and am maintaining a position, it simply has not worked well this year due in part to my own unrealistic expectations.
Back in October, I wrote about avoiding Equifax Inc. (EFX) shares in the wake of the infamous data breach that may have affected millions. Shares endured a 35% haircut from Sept. 7 to Sept. 15 as the data breach news was front and center, but had recovered somewhat when my column ran. I thought the fallout would get worse; however, shares have recovered another 10% since then, and the data breach is now yesterday's news. I still don't want to own this name, but the market appears to be thinking otherwise.
These are just three examples where the George Costanza method of doing the opposite -- featured in one of my all-time favorite "Seinfeld" episodes -- would have paid off. Still, if you are going to enjoy your investment triumphs, it is healthy to acknowledge the miscues.