As we approach the end of the year it is a good time to take stock with your investing, and it’s no different for the team at Shares. We do our best to furnish you with strong investment ideas every week, but we clearly do not get it right every time.

Two big losers from the last 12 months or so which stand out as examples where we need to hold our hands up and acknowledge we got it wrong, and where a reader has (very politely) asked for an update, are telecoms network and cloud computing testing outfit Calnex (CLX:AIM) and plastics manufacturer Synthomer (SYNT).

Looking back at investments which have gone awry can be a useful exercise. If you are prepared to take on board the lessons from these episodes you stand a much better chance of making better decisions in the future.

Notably both Calnex and Synthomer are small-cap stocks where the risks are inherently greater. These less mature businesses can see a single setback make a big impact across the wider group. A bad purchasing decision or botched computer systems upgrade can be the difference between meeting and missing expectations.

With Synthomer we have to go back to September 2021 when we first flagged the shares’ appeal in a wider look at the chemicals space. The shares have been in retreat almost ever since. Unfortunately, we doubled down in May 2022 flagging the company as an ultra-cheap stock to buy.

In simple terms the company was hit by lower demand for latex medical gloves coming out of the pandemic. Its NBR division supplies the nitrile latex used in the manufacture of these gloves. The company has subsequently suffered from wider economic weakness which has hit other parts of the business.

The first pointer that all was not well with Synthomer was the lowly rating – suggesting the market did not believe the earnings forecasts. Such situations can represent big opportunities, but often the market is proved right and that’s certainly been the case here. Chemicals firms are also typically highly sensitive to fluctuations in the economy, meaning we should have taken a closer look at the balance sheet which became increasingly strained as trading deteriorated.

Synthomer’s problems became so bad it was forced into a £276 million rights issue at a heavily discounted price in September 2023. Berenberg analyst Sebastian Bray believes the rights issue has fixed its balance sheet.

‘The stock’s current situation, characterised by depressed end markets and low valuation multiples, is reminiscent of the period post-financial crisis; shares more than quadrupled in the subsequent two years. We believe shares offer attractive early-cycle exposure to any economic recovery,’ argues Bray.

It would be a brave investor who looked at the chart for the last two years and opted to invest for such a scenario.

Scotland-based Calnex was a more recent misstep on our part. We highlighted it in August. It has nearly halved in the interim – the hammer blow to the shares coming from a warning on 10 October.

Revenue was pitched at being 20% to 30% below previous expectations thanks to subdued order levels. Profit warnings often come in threes (at least), so buying after an earlier warning predicated on a weak macro-economic backdrop, which hadn’t really shifted in the meantime, was in hindsight a mistake. At least in the case of Calnex it has net cash on the balance sheet.

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