Canadian Stock Market: 3 Investing Mistakes of 2021

This year, many stocks outperformed and many lost value. I’ll analyze three investing mistakes.

The stock market is full of surprises. Warren Buffett, despite being in the stock market for over 70 years, makes investing mistakes. Mistakes will keep happening. But the important thing is to identify them and learn from them. Here, I have listed three mistakes some investors made in 2021 and how to avoid them in the future:

Facedrive: An investing mistake 

Facedrive stock showed unprecedented growth of over 275% in less than two months (December 17, 2020 – February 8, 2021) on the back of all-share acquisitions of unrelated businesses. Warren Buffett has a funny way of describing such deals: “I’ll pay you $10,000 for your dog by giving you two of my $5,000 cats.”

Any value investor who dug into Facedrive’s business model and fundamentals would have identified that the company has no stable business. It started as a ride-sharing company focused on electric vehicles (EVs) and reducing carbon emissions. The company rode the EV rally, and when it saw the enthusiasm fading, it switched to contact-tracing, food-delivery service, and social. It was clear that the company is acquiring companies in the direction it sees popularity.

In one of his letters to shareholders, Buffett talked about how companies do short-term investor promotions to elevate their share price and raise funds. Such companies don’t have fundamental support and are first to collapse in a bubble burst. And that is what happened with Facedrive.

When Facedrive released its first-quarter earnings, revenue from its core business of ridesharing fell 72.5%, and 96% of its revenue came from the newly acquired food-delivery and car-rental businesses. That was the last of it, as the stock lost 94% of its value in a year. I don’t see scope for growth in the foreseeable future.

From the Facedrive mistake, investors learned to never blindly follow promotions but study the business model.

Cineplex: A trading mistake 

If you bought Cineplex in the hopes of replicating an AMC-level short-squeeze, it was a big trading mistake. AMC is a U.S. theatre chain that got caught in the Redditors’ short-squeeze mania and surged 522% in less than a month (May end and June start). The whole concept of meme stocks is a trading play, where traders look at the short interest in the options market and seek to make short-term gains by artificially inflating the spot price. 

Cineplex stock first surged 40% in February, immediately after AMC stock fell. Then it surged 35% in the last week of May alongside AMC. Those who bought Cineplex stock to chase the short-squeeze rally ended up buying it at a hefty premium. Cineplex stock has the potential to recover to a $14 price, but that will only help you exit at a reduced loss. 

Even if the theatre chain recovers, there is little scope of growth, as it is a dying business. Over-the-top platforms are cheaper than theatres, and the only thing that has kept Cineplex and AMC alive is the theatre experience and those expensive popcorns. Holding on to such a stock would make sense if it paid dividends. But with inflation at 4.87%, you are losing more opportunities by blocking your funds in a loss-making company. There are better stocks on the TSX. 

Investing in gold 

Many people consider gold an inflation hedge, as its price tends to rise in an economic downturn. But this year, gold stocks moved in tandem with the market and the economy. Barrick Gold stock underperformed the market and fell 23% in the last 12 months, while the TSX Composite Index surged 18%. 

Many factors played into the gold price. Its price rose between May and August 2020 but then came crashing down. Even Buffett invested in Barrick Gold for a short stint but withdrew his money. I agree with Buffett’s thinking that gold does nothing but sit in the vault. You are better off buying a stock that has usage, demand, and a possibility of further growth in demand. 

Bottom line

The above mistakes teach us not to chase a stock price rally that is not sustainable. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends CINEPLEX INC.

More on Stocks for Beginners

construction workers talk on the job site
Energy Stocks

Best Stock to Buy Right Now: Baytex vs Suncor?

Suncor and Baytex stocks both look like solid companies offering growth and dividends. But which is the better buy?

Read more »

profit rises over time
Top TSX Stocks

3 Reasons to Buy Enbridge Like There’s No Tomorrow

Have you considered buying Enbridge (TSX:ENB)? Here are 3 reasons to buy Enbridge today for lasting growth and income.

Read more »

An investor uses a tablet
Stocks for Beginners

If I Could Only Buy 2 Stocks in the Last Half of 2024, I’d Pick These

I’m looking to buy two stocks over the next month. Here’s a look at my picks and why you should…

Read more »

dividends grow over time
Stocks for Beginners

The Smartest Growth Stock to Buy With $2,000 Right Now

Do you have $2,000 to invest for the long term? These three TSX stocks have and will continue to deliver…

Read more »

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Is OpenText Stock a Buy, Sell, or Hold for 2025?

OpenText stock has fallen in the last few years, but that could mean this top tech stock remains an undervalued…

Read more »

man touches brain to show a good idea
Dividend Stocks

3 No-Brainer REIT Stocks to Buy Right Now for Less Than $200

REITs have long been touted as some of the best dividend stocks out there if you want recurring, strong income.…

Read more »

grow money, wealth build
Dividend Stocks

3 Top High-Yield Stocks to Buy in November

If you want passive income, high yield dividend stocks are the clear choice. These are the best, and safest, out…

Read more »

Stocks for Beginners

Where will Loblaw Stock be in 5 Years?

Want a great food stock that can provide growth and income? Here's why Loblaw stock can offer that and more.

Read more »