I've just re-read that article and note that Marcus' "9-day-rule" may apply more to companies that have positive announcements and rise sharply on day 1, than for companies that have a downgrade and fall. Near the end of the article, when replying to a subscriber email, he suggests that recent day one drops from companies like Downer (DOW) and IAG were followed on day 2 by a bounce - that the worst of it was all on day 1. Let's see if that also holds true for Treasury Wines (TWE) today after their 25%-odd fall yesterday on their downgrade. Further weakness today as brokers downgrade - or a bounce?

While it is not uncommon for the price to rebound after a heavy selloff on Day 1, as a long-term investor, I am more interested in what happens over the subsequent weeks and months. In my (limited) experience, these kinds of heavy falls, which are often crystallised by a profit downgrade against high expectations, result in further phases of weakness e.g. more downgrades in future reporting periods. So as tempting as it can be to initiate a position soon after a fall like this (especially if it is a company you have liked or watched for a long time), something tells me it is better to bide your time and stay on the sidelines. Any insights on that @Bear77 ?

Yes, Thunderhead. That is my experience also, for the most part. I sold out of RXP this week immediately after their FY20 guidance downgrade because I expect further weakness as well as probably another downgrade or two from the company. It doesn't mean I won't re-initiate a position again at some point in the future, but I would prefer them to be in an upgrade cycle than a downgrade cycle, so my view is pretty much in line with your own on that score. Hpwever, there are exceptions. There are a small handful of companies that I follow VERY closely and believe I understand very well, and if they have a downgrade that is reasonably explained by one-off factors (such as major contract deferrals by clients that are outside of the control of the company) and I believe the market has over-reacted to the downside and given me an opportunity to accumulate more stock at a bargain price, I will buy more. But only when I really trust the management of the company and have faith in them to succesfully navigate through the temporary setback(s) that they have described. But then there are exceptions to those exceptions. If the company was facing serious headwinds that are outside of their control, and those headwinds were likely to get worse in the near to mid term, I may well exit the company or reduce my exposure with a view to buying back in at a lower price when those headwinds had either petered out or reduced substantially. Sometimes it depends on whether they have had downgrades before, and what the market reaction had been then, and whether those downgrades were one-offs or part of a pattern. There are probably too many considerations to list actually. There are a lot of factors worth considering. But, on the whole, generally speaking, I agree with you Thunderhead, in most cases.

Thank you @Bear77. Your point about the quality of management is very important in these situations. So yes, the whole thing is nuanced and has a heavy "art" element to it. Do the likes of TWE and NEA qualify under "companies you know very well and are willing to add on the drop"? I am hesistant with both at the moment, partly because they are still not cheap enough to compensate for the risks.

No - sorry - I don't know TWE or NEA very well, and have no view on their respective management teams or their track records. You probably have a rough idea of the companies that I was referring to from our MFDI days. One is GNG. Another is MND. They are all mining services and/or engineering services companies, - or miners. One of my very favourite companies currently is Codan, who are really in a different bucket entirely - more of an IT hardware manufacturer, best known for making the world's best metal detectors (the Minelab Gold detectors that they make are head and shoulders above the rest) and communications equipment for use in remote areas and/or underground, so they do have some mining clients, but they're not really a mining services company - as that's not where the bulk of their revenue is derived from. All that said, while I follow their management - and am impressed by them - and their focus on strong company culture (working together for the good of the team rather than for the individual - and so forth), I don't know them as well as I do with some of those other companies who I've followed closely for many years. I've ridden Codan up from $2.88 more recently, and they're now $7.64 (and were $8.44 two weeks ago), but I wouldn't be buying them up here. I've been trimming all the way up of course to lock in profits and keep the position weighting appropriate. Codan is one I haven't bothered adding to my Strawman.com scorecard. I should have. Not up here though. My scorecard bears very little resemblance to any of my real-life portfolios, or to my real-life results, and it's far from perfect, with no ability to position size or choose buy and sell prices, but it gives me an outlet. Something to do in my spare time, and I do read some good stuff here pretty regularly and learn a bit, so hopefully I give as good as I get. But no, I'm not interested in NEA or TWE.

Thank you. Yes, I remember the DI days and your focus on resource-related companies very well! Codan has achieved quite the turnaround over the years. I still don't have any mining exposure in my portfolio, though I did buy RUL in the 50s. Unfortunately, I lost my patience after some months and sold out too early, just before the recent breakout :(

I also was an RUL shareholder Thunderhead, but also sold out too early. I thought there just wasn't anything happening and I thought I could deploy those funds into something with more immediate upside potential. I should have had more patience as it turns out. I like what they do - integrated software systems for miners, for planning, tracking and automation. RUL is one that Steve Johnson talked up in a recent update on his Forager Australian Shares Fund (FASF, ASX: FOR) - see here: https://foragerfunds.com/news/investor_resources/quarterly-report-december-2019/ You have to scroll down a looooong way to reach it - and the title is "Revving up at RPM". Also, in their December quarterly video series Senior Analyst (at Forager) Alex Shevelev discusses RPM Global with Alex Larkman. Check out the video here: https://youtu.be/cjh1nOELVO4 On Jan 20 FOR lodged a substantial shareholder notice for RUL - they now hold 5.64% of RUL. SJ & the FOR team can be very patient, and they usually have a reasonably long time horizon, but some of their investments provide some good shorter term wins for them also. RUL was up +31% in January alone, and has doubled their SP in the past 12 months. Patience is sometimes rewarded. Or you can just get into a stock at exactly the right time, as Forager seem to have done on this occasion. It's always a dilemma though - with a fixed pool of capital - what are the very BEST companies I can invest in at any given time? I think doing the research, making a decision, and sticking to it - having the courage to stick with it - and give the investment thesis time to play out, is vital. It's not easy, but it's very important NOT to keep chopping and changing and convincing yourself you've found a better opportunity all the time. Once you have set up your portfolio, often the very best thing you can do is nothing at all. Keep one eye on it, but stress less and concentrate on life's other pleasures, while always being prepared to act fast if circumstances warrant it. I sometimes have trouble following my own advice. It's a struggle sometimes.

Yes indeed @Bear77. Thank you for your response and the links. I am familiar with Forager and their buying of RUL too. For all their savvy, they have also stepped into some real landmines of late, for reasons that seem to defy reason. FIG, TGA, ISX, and EXP. It may appear smart to pursue such “cigar-butt”-like investing, but for mine, there are far easier ways to make money in the share market without resorting to these levels of complexity or difficulty. In my case, there was nothing wrong with the company at the time of my selling. A good portion of my sell was also motivated by trimming my portfolio, which is still a little too bloated for my liking (a combination of some “legacy” underperformers which I will offload at the right price and too many compelling ideas I wanted to gain some exposure to). RUL seemed easy to offload in that context

P.S. To your point about buying and holding for long periods, that is something I generally have no trouble with. Although that mentality means you also tend to cling on to poor performers for far longer than you should, the winners more than make up for it. There is a strong correlation between my best performers and the companies I have held the longest!

P.P.S. ISX in the original reply was meant to be ISU.

Thanks for the update and correction TH. I was about to reply that ISX would certainly be a bridge too far even for Forager, as RFG was too when I asked SJ about them either early last year or in 2018 (I did post here about that conversation via an RFG straw). He said that they'd spent hours looking at RFG but he felt the odds of them surviving at all were pretty low, particularly given that he viewed some of their lending covenants as unachievable at the time. He said that it was the debt that had them hamstrung. They couldn't invest the money that they needed to - to resurrect their ailing brands and get their unhappy franchisees back on board - because the banks were demanding that almost every dollar they could get hold of was used to reduce debt. However - as a FOR shareholder, I agree that some of their Australian Fund investments (particularly in TGA & FIG) were very strange. I note that Steve has certainly changed tack somewhat in the Australian Fund. In the March quarter of 2018 they even bought a position in Carsales (CAR): https://foragerfunds.com/news/investor_resources/quarterly-report-march-2019/ CAR is up +36% since then. You wouldn't call Carsales a typical Forager stock - but it's good to see he's prepared to invest across the spectrum, rather than ONLY in the cigar butts.