July 24, 2007

More patience required ?

I have posted on kothari products earlier (see here). I exited the stock quite some time back.
see below the latest price action (ouch !!!). well this is not the
first time :)


update 25/07 - i checked up on the news and any other new developments. Could not find any fundamental reason on this spike. I am still sticking to my earlier thesis that i should not get into such stocks in the first place.

Key reasons being

- poor management and poor capital allocation

- management is not shareholder friendly and is not transparent at all

- no visible trigger for the value to get unlocked.

I would however keep tracking new developments and see if i missed something obvious.On the other hand, L&T was a clear miss from my end. I failed to do a sum of parts (the cement business which was destroying capital and the EPC business which was doing well) and also did not realise that once the cement business got divested, the value would get unlocked. As buffett says, i was looking in the rear view mirror and not through the windshield.

7 comments:

aj said...

I was also holding stocks at 550 for a long time and thought it is one of those mistakes of buying an unglamorous cheap stock.Sold it at the same price after 6 months

A mistake -as the graph tells us.

Aloo

Ranjit kumar said...

Hi Rohit,

I have purchased the stock at an average price of 530/- and sold it around 570/- but i dont regret my decision to sell. At that time considering the other opportunities and the fundamentals of the stock i took the right decision. If i were to face similar situation now i would do the same just because i dont think it is wrong to sell when i think should have.

Regards
Ranjit kumar

RaviAranke said...

Rohit,

My experience is similar.
I was in and out of this stock as I could not get any comfort from what the promoters would do with the cash on the books.

Investing is so much about 'knowing yourself'. The lesson I have learnt from Kothari products is this: Even if such a stock were to take off, I am unlikely to benefit from it as I won't be able to hold on till Mr. market offers better price.

The litmus test for me is this: If the stock I buy were to drop by half, would I back up the truck and buy more?

In case of Kothari, if the price were to drop by half (instead of doubling or more as it has done), I would have panicked and sold out. Ergo, I should not make such bets. I am in this business for compounding bets.

As Buffett puts it "I don't have to win all games - only the games I choose to play".

This is a game which we chose not to play. There will be many such games ... that is fine.

khali_pili_lafda said...

Rohit,
This one reminds me of Cheviot. I'm continuing to track it. It has similar characteristics.
1. Unglamorous industry (jute)
2. Heavily undervalued (50%+ margin of safety)
3. Management/Promoters have 70% or more of equity stake
4. Steady operating income and dividend payouts
Value will emerge over an extended timeline so patience is the key.
Niraj

Rohit Chauhan said...

it does remind of cheviot company. the difference is the management is a bit more shareholder friendly..small things like reasonable dividend, proper shareholder communication via AR etc. and i agree patience would be the key as it has only got cheaper now
ravi, ranjit - i would take the same decision as i took then. however at the same i prefer not to ingnore such an incident. if a stock does not behave as per my cherished beliefs i have a tendency to ignore the evidence. i am trying to avoid that.

RaviAranke said...

Rohit,
You are right. It is not good to brush the evidence under the carpet and indulge in self justification.

If one bought then one should have had the patience.

If one didn't buy then that's a different story.

The lesson I have learned is not to buy such stocks as I don't have the necessary patience/confidence to stick with it.

hrohatgi said...

now that they have announced the demerger with parts going to pan parag what are you views on the stock. another way to squeeze small shareholders.