Remember Sad’s story?
He’s the young investor who lost his grandmother’s inheritance by putting it into Intel shares.
Well, he’s not the only one with an undeniable talent for sniffing out bad investments.
A nose for trouble
Let’s go back a few years, to the COVID period.
The pandemic had spread, and curfews and lockdowns were the norm.
Everyone was stuck at home, and lots of people were getting sick.
An investor, let’s call him Sam, spotted a genuine problem:
With people stuck at home, they were lonely.
What did they need?
Company.
What would they naturally do?
Buy pets.
What kind of pets?
Dogs.
What did dogs offer?
A valid reason to go outside despite lockdown.
And the best part?
They get sick too.
BINGO!
He’d found the perfect investment idea.
Sam was going to invest half a million dollars in a company specialising in pet medication: PetsMed.
A canine nightmare
On paper, the reasoning looked "OK".
I’ve seen investors fool themselves and make far worse leaps of logic.
But Sam would have been better off worrying about humans and investing in pharmaceutical companies.
They were the ones that outperformed during COVID and afterwards.
Anyway, back to our dog medicine story.
If you read these stories regularly, you know things never go to plan.
Five years later, Sam’s PETS investment had lost 89% of its value: $426,524.
I’ll try to explain why, and what we can learn.
Because, as a reminder, the goal is to learn from other people’s mistakes, not just laugh at them.
Why did the investment become a disaster?
Flawed assumptions
- The idea that more people would buy dogs was correct.
But once lockdowns ended, people started getting rid of their dogs.
Yes: no more loneliness, no more need for a dog...
The result: no dogs, no spending on dogs.
- The assumption that people would buy more dog medication was wrong.
People tend to have very sick dogs put down rather than put them through intensive medical treatment.
The result: no sick dogs, no medication sold.
- On top of that, macroeconomic and company-level conditions hurt PetsMed’s performance.
The result: the share price fell instead of rising.
Basic investing mistakes
Sam’s biggest mistake, one many gamblers and novice investors make, was putting all his capital into one asset.
In this case, PETS shares.
Diversification helps prevent one big loss from damaging your entire portfolio and capital.
His second major mistake was failing to cut his losses.
Even as they grew year after year, he never sold.
He stayed attached to his original reasoning and refused to admit he’d been wrong.
Whatever happens, I hope it hasn’t put him off dogs...
I’ve fictionalised the reasons behind NecessaryLocation788’s investment. They’re my own assumptions.
Story source: Reddit.