In “Stock Market Investing Mistakes (Part 1)”, I shared my experience with BMW AG shares. Since then shares of BMW AG rose around 16%, so now its weight in my portfolio increased even further. On a good side, I have now a small positive gain. As I mentioned, in my previous post, I plan to start decreasing my BMW AG position in order to improve the diversification.
This post is about my biggest paper loss so far that I achieved by averaging down on TEVA. This is such a great example of how “Catching a Falling Knife” can look like in reality.
Below is the list of all TEVA transactions that I made:
As you can see, I was accumulating TEVA shares starting from 04.10.2016 till 18.04.2019, when I decided to stop this madness. To be honest, I started to suspect that I am catching a falling knife long before that. My motivation and courage to buy more and to continue averaging down came from Warren Buffet’s Berkshire Hathaway opening his position and taking a ~4% stake in TEVA in 2018. You can read more about it here:
1. “Why Warren Buffett’s Berkshire Hathaway loves loathed Israeli drug stock Teva”
2. “Warren Buffett’s huge losses on Teva mount”
And then TEVA dropped to $6.07…
When I started writing this post my paper loss was whooping $25 347 or 78%!
On screenshots below green arrows represent “buy” transactions:
What should I do next?
Let’s try to perform some simplified analysis taking into account the opportunity cost and assuming that I can earn 8%/year investing my money somewhere else.
Of course, there is a lot of options, but I will concentrate on 2 of them.
- Sell all (1070) TEVA shares now and invest $7 211.
After 10 years, assuming an 8%/year interest rate, I will have $15 568. In order to beat this result, I need TEVA shares to reach at least 15569/(number of shares that I own) = 15569/1070 = $14.55.
- Wait 10 years and then sell 1070 shares of TEVA.
Here again, it would be impossible to compare without making some assumptions, so let’s take a look at some possible outcomes (pessimistic, neutral and optimistic)
- Shares of TEVA drop to 0 in 10 years.
- It reaches $30 in 10 years, which is the average acquisition cost of TEVA in my portfolio.
The value of my shares will be $32 100.
- The price of TEVA increases nicely and reaches 40$ in 10 years.
The value of my 1070 shares will be 1070*40 = $42 800.
TEVA was hit hard by the opioid crisis and Copaxone patent expiration. However, I’m still somewhat optimistic. It seems that the new CEO is working hard on reducing the costs and paying down the debts. I decided to keep my shares.
By the way, while I’m finishing writing this post, TEVA is up almost 60% from $6.74 to $10.20! Now I have the motivation to write more about different stocks/ETFs in my portfolio. 🙂
Please don’t take my dreams and hopes as advice to buy/sell/hold TEVA shares! I’m not a financial expert. In this post, I’m sharing my own experience and thoughts.
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