Bad Investment — The worst stock I’ve ever invested in!
Bad investments and failed stock picks are part of any long-term investor’s journey
Long-term investing is a journey with many ups and downs. You will make investment decisions that turn out to be your best investment, and some decisions will result in a complete failure. Even if you research your investments thoroughly and do extensive due diligence before investing in stocks, your investment may go completely down the drain. For me, the worst stock I ever invested in was definitely Wirecard (XETRA: WDI). But in investing, every failure is a valuable learning experience!
Wirecard — From FinTech star to bad apple
Wirecard, the global technology company, payment processor and financial services provider, was a top stock pick for years with solid growth and a rising share price. At some point, the story was overshadowed by allegations of accounting fraud. At that point, I decided to invest in what I thought was a solid growth company that was unjustifiably trading at a steep discount. I thought I had a very good entry point into what I assumed would be a very worthwhile investment.
My investment thesis was that the reason for the allegations were attacks by short sellers (the stock was heavily shorted, and there had been allegations before that were always debunked). I could not imagine that a regulated German DAX company could be involved in such a fraud without being noticed. Well, that turned out to be a very wrong assumption, and when it turned out that €1.9 billion of the company’s cash was “missing”, the stock crashed, and it turned out to be the worst financial scandal ever in Germany, which meant a loss of more than 90% for me.
What I definitely learned from this fiasco is to get the hell out when in doubt! There are many highly interesting stocks out there, and it’s just not worth messing around with companies that have been accused of fraud or other wrongdoing. It’s usually better to just get out, move on, and focus on other companies without these issues. This story also underscores the importance of diversification.
Fortunately, I run a highly diversified stock portfolio and Wirecard was weighted at less than 1%. This means that while I lost almost everything on this position, it wasn’t a big deal in relative terms. However, other investors who focused on this stock were not so lucky. What was your worst stock investment and what have you learned from your bad investments? Let me know in the comments below.
The information in this article is intended for educational purposes only and should not be construed as investment or tax recommendation. Trading and investing involves substantial risk of financial loss, in some cases even above the amount invested. Past results are not indicative of future returns.
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Originally published on December 31, 2020.
