Goodbye Dapai!

I’ve just realised that I’ve made a few mistakes by investing in Dapai. Thus, I have fully divested my shares in Dapai. I have only held on to Dapai for around 2 weeks and luckily, I have realised my mistake early.

Reasons for divestment

1) Company did a share placement in May 2010 even with lots of cash in hand and negligible debt. It raised money and diluted shareholders holdings without the need to.

2) Company has been postponing opening of 500 new stores and I’m not comfortable with this.

3) Net profit margins, ROE, ROA have been decreasing throughout the 3 years. Maybe I was blinded by various rosy pictures painted by the company.

Lessons learnt

Even with all the “negatives” of the company, I went on to invest in the company. I broke a major rule in value investing – “When in doubt, never invest!”.

Also, I almost broke Warren Buffett’s main rule – “Rule No.1: Never lose money; Rule No.2: Never forget Rule No.1”. I almost lost money on Dapai. Luckily, I managed to sell it off at a slight profit after deducting commissions. How to make sure one doesn’t lose money? By researching on the company thoroughly and when there are “negatives” in the company, investigate why is that so. I guess I was plain lazy at times to research thoroughly on Dapai and still went on to invest in this company. I was afraid of “missing the boat” as Dapai was very undervalued at time of purchase. It just hit the support level after profit warning was released and I went in to invest (at least, I’m not fearful to invest when stocks plunge. Haha!). One of my mentors told me once, “To me, losing opportunity is better than losing money” and that’s a tenant to invest by. I would rather lose opportunity (not getting in at a cheaper price) when researching Dapai then invest in it and lose money in the end.

In value investing, being disciplined is very critical. I wasn’t disciplined enough to research thoroughly. All the criteria (eg profit margins, ROE, balance sheet, cash flow, etc) must be perfect/near perfect and then only, valuations and MOS will make sense. When the analysis is skewed, no amount of valuations and MOS will transform the company into a good buy. Warren Buffett’s quote “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price” comes to mind.

In the future, I’m going to research thoroughly on a company before even putting a single cent in the company like how I did for Kingsmen, Super, TMC and HLS. A thorough research and understanding the company inside out (at least to the best of my abilities) before putting money on the company is another “margin of safety” for me. I’ll also try to not look at the price of the company while researching it, so that my research and thoughts will not be not skewed/biased. This blog makes me accountable for my actions and without such a blog, I feel that it will be hard to take my investment skills to the next level. I also strive to give a good analysis on companies as some of my readers rely on my posts for their own research (note that doing your own thorough research is paramount before ploughing money into any company).

Future course of action on Dapai

I will KIV this company and see if things improve. I would closely scrutinize the profit margins, ROE, whether management is keeping its word on opening of new stores and dual listing and whether building of new luggage factory takes off. There is possibility that I would re-invest in this company when things turn out better.

P.S. You might think I’m being hard on myself, all these are not warranted for and that Dapai is still a great company. Please note that this post is purely my own thoughts and Dapai might still be a good investment to many. This post does not serve as a sell recommendation to any of the shareholders of Dapai. This post serves merely as a personal reflection.

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16 thoughts on “Goodbye Dapai!

  1. Hey, congrats on having the power to do such decision :)
    I have done such things myself, rushing into a company because i thought it will be my big hit and ignoring unpleasent facts.
    “When you decide to buy a company, make sure you dont fool yourself and youre the easiest person which you can fool.”

    Anyway i dont never liked Dapai because of their buisness.
    How much bags does a person need? Maybe 1-2.
    How often do people buy bags? Maybe 1 a year?
    I cant see how they want to sell more and more bags. Others buisnesses have it easier to increase volume.

    And more important is their moat for having a good margin. They are trying to make their brand their moat. But how many people care about having a branded backpack? I think a bag is a item where a good brand is not a moat as in clothes or food. For many people it is just a storage item and not something to show off, so there is less barrier a buy a cheaper bag from a competitor.

    • Thanks Michael! I guess it wasn’t that hard since I was sitting on some profits. If it was a loss, I guess it would have been difficult.

      I guess I was blinded by the “35.8% market share” that Dapai had and the market survey that was conducted to conclude it had good enough a moat. I beg to differ that some people do care about having a branded backpack and I have seen that in Singapore, especially the likes of Nike, Adidas, etc. For females, LV and Coach bags (not backpacks but handbags) are a sure turn-on for most brand-conscious consumers.

  2. Hey, thanks for the Dapai review. Simiarly read what was posted on valuebuddies, and almost went in, but decided against it.

    plowing into spindex instead!! tee hee.

  3. Hi FFN,

    Don’t worry too much about it. I’ve been a lot harder on myself on some of my mistakes and subsequent divestments. In fact, it’s good to be hard on yourself so you’ll learn the lessons from these mistakes, which will make you a better investor in time to come.

    Am glad you managed to reason things out and make an informed decision.

    All the best for your future investments! Will check back at your blog now and then!

    • Hi MW,

      Thanks MW. You are one of the people I look up to as you have great insights and experience in VI.

      Yes, I agree that you have to be honest about your mistakes and not repeat it in the future. Only by learning from our mistakes, we can grow even further. May I know what do you mean by “Will check back at your blog now and then!”? Isn’t that what you have been doing all these while? Haha.

    • Hi MW,

      Yes, PLEASE frequently visit my blog and give your insights. Your insights have been very helpful for my growth and I hope you won’t stop coming to my blog. I’m still learning you see… I only started investing in June 2009 after I turned 21. It’s been a very short 1.5 years experience for me and I still have LOTS to learn.

  4. I also analysed Dapai a few months ago and was also very interested in the stock. At the end of a days work I decided to sleep on the idea. The next day I decided not to buy the stock since I thought that branding in backpacks is not such a strong thing. When I buy a backpack I couldn´t care less what the brand is…and I think most people think the same way. So this leaves the company open to future competition. I also didn´t like the share issue and other aspects you raised in your reasons for selling. As far as an above comment regarding Nike and Coach backpacks…well obviously Dapai is just nowhere in this branding league.

    When I buy a stock I like to think of it as an investment for the next ten years. Will Dapai still be around in 10 years? Anyones guess.

  5. Hi FFN,

    been reading your page for quite awhile.
    I was looking at Dapai too, and I got very excited because many people were hyping the stock up.

    Then I remembered that the number 1 mistake amateur investors make is by blindly following tips and recommended stock.

    Then Dapai released it’s profit warning… and i got really turned off. haha.

    anyway, could you link me? I’ll do the same :)

  6. 1) Company did a share placement in May 2010 even with lots of cash in hand and negligible debt. It raised money and diluted shareholders holdings without the need to.

    Regarding this, I have no idea why they did this too.

    2) Company has been postponing opening of 500 new stores and I’m not comfortable with this.

    Dapai has luggage supplier problems and if they open the stores, they might not have anything to sell…maybe they’re waiting for the supplier problems to ease?

    3) Net profit margins, ROE, ROA have been decreasing throughout the 3 years. Maybe I was blinded by various rosy pictures painted by the company.

    Dapai’s profit margin, ROE and ROA are exceptionally high for a manufacturer/retailer without much intangibles like Nike or Adidas, for instance. Maybe they’re just reverting back to the mean?

    just my 2 cents…

  7. I expected a correction after the recent rights issue announcement. But I am very surprised by the extend of it (40% drop in three days)

    My assumption after the announcement was that Chen Xizhong’s intention was to acquire a competitor to boost its luggage production capacity, which would help to solve the recent production bottle neck (by the way, all 500 new outlets seem to have been opened). Which might, depending on the price paid, be a good thing. But the market seems to view it differently.

    Your view? Might this be a good opportunity to buy?

    Regards, Luha

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