Baseball great Yogi Berra once said, "Losing is a learning experience. It teaches you humility. It teaches you to work harder. It's also a powerful motivator." These words from the eminently quotable sports star are worth keeping in mind for investors, particularly at a time when many will be looking back on portfolio performance over the last year.
It's possible to take vital lessons from investments that have otherwise been big losers, and applying that knowledge will often put you in better position to win in the future. With that in mind, we asked three Motley Fool contributors to profile their worst-performing stocks of 2020: Eros STX Global (ESGC), Norwegian Cruise Lines (NCLH 0.80%), and AT&T (T -1.13%).
See how these companies burned their otherwise successful investors -- and whether the experience changed their theses on the stocks and overall investing strategies.
A speculative streaming play that has yet to pay off
Keith Noonan (Eros STX Global): When I first heard about Eros STX Global, I was immediately intrigued. A bit of research uncovered that the "Netflix of India" label sometimes used to describe the company was probably overly complimentary, but the stock still had appeal as a high-risk, high-reward growth play.
This is a small-cap company valued at roughly $400 million. It's pursuing expensive endeavors like building a streaming platform and producing movies and TV series that can stack up against releases from resource-rich competitors. It's also trying to do this at a time when pricing power for a monthly streaming service in the Indian market is fairly low compared to Western markets. However, those daunting prospects start to look a bit different when viewed in the context of the entertainment industry's incredible growth potential in the country.
I bought Eros STX stock with the understanding that it would be one of the riskier investments in my portfolio, and today it stands as my worst performer of the year -- with shares down roughly 25%. All things considered, it could have been a lot worse, though I don't discount the possibility that the stock could fall even further.
Eros is still a speculative stock with a lot of problem points that might worry investors. But, because it represents a relatively small portion of my portfolio, my shares losing a quarter of their value doesn't hurt too much. I own other stocks that have done quite well this year, and I'm usually willing to give high-risk growth plays time to pan out.
I'll be sticking with Eros STX, but I did recently sell some shares at a loss to help reduce my capital gains taxes for the year. There didn't appear to be a catalyst for Eros stock to pop in the near term, and I think there's a good chance I'll be able to buy shares at roughly the same price (or cheaper) sometime over the next few months. Normally, I prefer to own stocks for the long term, but I'll also take advantage of tax benefits when the opportunity is there.
Come the new year, I'll be buying Eros STX shares again. All of the same risk factors remain, but the company's business position and potential to deliver fantastic returns haven't really shifted either. I have room for some high-risk investments in my portfolio because big gains from winners will normally more than make up for the losers. It's a strategy I'll continue to employ, even though it also means some bets will inevitably post big losses.
The market has a way of keeping us all humble
Chuck Saletta (Norwegian Cruise Lines): My biggest loser in 2020 wound up being Norwegian Cruise Lines. That loss was driven by a perfect storm: the coronavirus pandemic, and panic on the part of both the market and my broker. That panic turned what would have been a survivable decline into a forced position close near the bottom of the early-2020 market crash, netting me a loss of more than my initial investment.
Prior to the coronavirus pandemic, Norwegian Cruise Lines looked like a reasonably valued vacation-oriented business poised to capitalize on the world's aging population. So I opened an options position in the company, looking to potentially profit from those long-term demographic trends.
When the first news of COVID-19 surfaced, I assumed that cruise businesses would be able to handle it as they had other transmissible diseases. After all, cruise-ship illnesses had been fairly common before, and the industry had always found a way to cope, adjust, and survive. As a result, I made the decision to hold on, hunker down, and trust that the adjustments I'd made to my options account to make it more resilient to downturns would let it survive this one.
The problem was that my adjustments were based on what turned out to be a flawed assumption: that the investment-grade bond market would remain functioning in a stock-market crash. The adjustments I had made relied on owning those types of bonds in the same account as my options, both to tamp down on volatility and to provide a more easily sellable asset in a stock-market panic. Unfortunately, when the economy started shutting down to try to fight the virus's spread, the bond market froze as well.
In the middle of the panic, while I could liquidate the bonds of some of the very strongest companies I owned, for others, I couldn't even get a bid to sell at any price. And in between those extremes, I found that the only willing buyers were quoting prices that were more than 30% off recent market prices.
On top of that, as the market crashed and cruise lines were hit particularly hard when they were forced to stop sailing, my broker increased its margin requirement on Norwegian Cruise Lines. That made it more expensive for me to hold on to my existing position, just as the value of that account was tanking and I couldn't liquidate my supposedly "safer" investments to raise cash. As a result, when the then inevitable margin call came, I was forced to liquidate my Norwegian Cruise Lines position to remain solvent.
Much as I had hoped, Norwegian Cruise Lines has staged something of a comeback since then, as a path to COVID-19 treatment became clearer. Unfortunately for me, having been forced out of my position, I did not participate in that recovery.
The lesson I learned from that debacle: No matter how well you think you prepare, using margin adds risks that can force you to make decisions you otherwise wouldn't. Avoid it completely, and you won't have to face those risks at all.
AT&T is nearing a much-needed daybreak
James Brumley (AT&T): I've owned AT&T for years now, mostly for the dividend. I'm still happy with it in that regard despite the recent decision to skip a payout increase for the coming year, as the dividend itself still isn't threatened. The company can more than afford to keep paying the $2.08 per share it's dished out over the course of 2020 while it irons some things out in 2021.
Not many other investors are viewing things through the same optimistic lens, of course. The stock's on pace to end 2020 down 20%, extending weakness that first took shape in 2017.
The DIRECTV conundrum is driving most of this doubt, though I have to wonder: Are people now realizing AT&T has underinvested in 5G compared to telecom rival Verizon (VZ 0.11%), and underestimated how much of a competitor T-Mobile US (TMUS) would become once it united with Sprint? T-Mobile continued to lead the country's wireless industry through the third quarter, boasting the most net customer additions.
AT&T's nascent streaming service HBO Max isn't exactly knocking it out of the park, either. A relatively modest 12.6 million subscribers were signed on as of early this month, following its launch in late May. Comcast's (CMCSA -2.30%) Peacock launched around the same time, and it already has 26 million regular watchers. Walt Disney's (DIS 1.71%) Disney+ has nearly 87 million subscribers on board after it went live a little over a year ago.
Perhaps worse, most of those HBO Max users may not be paying for it. A big chunk of them likely qualify for free access.
Despite all these woes, I'm not interested in shedding my stake in AT&T...particularly now, when things are about to take a turn for the better.
The prospective partial sale of DIRECTV has a lot to do with that stance. Although the company's certain to take a sizable loss on the half it hopes to offload, that's a step in the right direction. Perhaps DIRECTV can be fixed and start to add paying cable customers, but it's become pretty clear AT&T isn't the owner to make that happen. This sale will free up time and resources for AT&T to do more fruitful things, like develop more and better 5G offerings.
As for HBO Max, it's not yet a powerhouse streaming platform, and may never become one. As I've suggested several times, though, that's not its value to AT&T. HBO Max is a customer acquisition and retention tool. AT&T needs a little time to figure out how to best apply this leverage, but that's on the radar.
All these efforts are admittedly moving at an agonizingly slow pace. But there's a light finally starting to shine at the end of the tunnel, which leads me to believe this stock's going to start unwinding losses suffered over the past three years. It'll keep paying its dividend in the meantime, which for newcomers means a nice high yield of 6.8%.