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.
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.