At the beginning of the pandemic, I found myself considering venturing into riskier investments. I had recently started my first full-time job after university and, like many other young Canadians, amassed unexpected savings during the early months of lockdown when my spending plateaued.
At the time, I felt I could afford to invest a small portion of my portfolio into a riskier asset in exchange for the possibility of greater growth. I had a separate emergency fund and was otherwise well diversified. And I considered my long time horizon: with 50 years or more of investing to go, I had time to make up any losses.
It was around this time that a friend of mine started to become interested in the shares of Nasdaq-listed XpresSpa Group Inc XSPA-Q. The company, which previously provided spa services in airports, was planning to convert its facilities to COVID-19 testing sites. At a time when fear surrounding the pandemic was at its highest, the business proposition seemed to make sense.
My friend, who was exceptionally enthusiastic about the company’s potential, had already bought shares. And, he had been right about stocks before. His excitement rubbed off on me and, on June 18, 2020, I bought around $2,000 worth of shares.
Thus began nearly two years of folly. The company was slow to set up testing sites. The stock faltered. Regulatory delays ensued. My shares dropped further. By fall 2021, panic surrounding testing was already starting to subside (though this would see a return when Omicron broke out in December), and some countries, including Canada, were starting to consider moving away from testing for travel.
With the urgency for airport testing on the decline, the price of my shares continued their steady decline until they settled where they now sit: 80 per cent down from where I bought them. Of the initial investment, only $400 remains.
While unfortunate, I was prepared to lose the total investment should the company not work out. And there are some things I – and other young investors – can learn from the experience.
The first lesson is, of course, to avoid speculation. The buy was, in fact, out of character for me. Now, as then, I hold a portfolio of relatively conservative assets, mostly in Canadian blue chip stocks such as banks, telecommunications and energy companies. My strategy had always been to buy and hold.
“Investing shouldn’t be exciting. It should be boring,” said Michael Dorfman, an investment adviser at BMO Private Wealth. “If it is exciting, it’s probably not investing – it’s gambling.”
Risk is inevitable while investing but it can be mitigated through diversification. Instead of putting $2,000 into one stock, I could have purchased a growth-oriented exchange-traded fund, or divided my funds among a number of riskier companies and alternative assets such as crypto.
I also took a gamble in that I trusted a well-meaning friend without doing my own research. Had I done so, I would have seen that XpresSpa’s profits had failed to rise significantly in years – a red flag, even given its coming planned operational change from spa to COVID-19 testing centre. “If you don’t know it, and you don’t understand it, you probably should stay away from it,” Mr. Dorfman said.
Yet I had been swept up in the excitement of the markets, which at this point were already rebounding from their crash in March, 2020. In the month that followed, stocks were buoyed by an influx of eager new retail investors eager to share their successes online.
“There are emotional human biases that come into play,” said Brianne Gardner, an investment adviser at Raymond James. “People only brag about their winners. You will never hear people talk about their losses.”
According to Ms. Gardner, one tool I could have taken advantage of to mitigate losses would have been a stop-loss. This is a type of order, selected when making the trade, that automatically sells the security in question if it falls below a pre-determined threshold.
Moreover, if the stock had been held within a non-registered (cash) account, I could have taken the loss and used that to offset any capital gains for the previous three years, or in the future indefinitely. However, I hold the shares in my tax-free savings account where, like any registered account, capital losses can’t be claimed for your investments.
According to Mr. Dorfman, no action is likely the best course of action: “Once it’s down 80 per cent, the possibility of further downside is probably low. So you can hang on to it and hope that maybe at some point, it recovers.”
Even if it doesn’t, I tell myself it was a teachable moment.
“Everybody has had a moment or two like that in their investment experience,” said Mr. Dorfman. “We all have a skeleton or two in our closets, right?”
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Irene Galea