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A Big Investment Mistake: $EMQQ
I initially purchased shares of $EMQQ in mid-2020 at about $52 per share. EMQQ is an exchange-traded fund (ETF) that focuses on investing in companies that are primarily based in emerging markets and involved in the e-commerce and internet sectors. The main holdings are Chinese stocks such as Tencent, Alibaba, Pinduoduo.
My initial thesis for buying:
- Foreign stocks trade at a significant discount to their North American comparatives so are due for a valuation correction
- Chinese and other foreign companies in the tech sector are seeing massive growth and adoption and COVID beneficiaries
- This has the "dual engine" for wealth creation (valuation & growth)
Next, the ETF kept rising for the next several months and touched >$80 in Feb 2021. This quick gain and increase in value gave me all the confidence that I had made a very good call and was right about my initial thesis. I, of course, did not trim or sell my position at this time.
Then came the start of the downfall from $80. When it initially started to decline, I just convinced myself that nothing goes straight up and there will always be bumps in the road so it'll turn back around soon. I kept holding (and kept holding this thought). The ETF kept falling from Feb 2021 all the way to Oct 2022 to around $22 at the low. I still hold this ETF today at around a 45% loss in one of my retirement accounts. I am now more prudent and looking at when a good time to sell this ETF will be.
Lessons I learned (the hard way):
- What is "cheap" can always get cheaper
- There are significant geopolitical risks in investing in foreign companies (particularly China). I overlooked this risk almost completely.
- I fell prey to many emotional biases. Especially confirmation bias and price anchoring bias.
What I have changed in my investment process:
- I do MUCH more research into the names of companies now and also the geographies they operate in
- I do not purchase anything right when I get the idea - I let myself think about it for awhile (helps with emotions)
- I seek out independent advice and opinions whether that is on Commonstock, Twitter, or other channels.
Overall, this is not my first loss nor will it be my last, but I am putting the best safeguards in place to prevent the same mistake. This unrealized loss has not been too bad as the position was not significant, but the opportunity cost of this trade is still impactful. I have learned a lot from my reflections on this investment and believe I have become a better investor because of it.
Which brings me to one of my favourite quotes:
- "Failure isn't fatal, but failure to change might be" - John Wooden
Thank you for taking the time to read!
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