Bear77
Very true @mikebrisy - I have made the same mistake with NCK in prior years, and they always bounce back from sell-offs, and they always go on to make new highs. There were always triggers, but sometimes it's more jumping at shadows than a truly broken investment thesis.
Sometimes there are genuine concerns but we have to take into account the quality of management and their ability to navigate around or over obstacles as they have always done. When the Scali family sold half of their 27% stake in NCK to one of their Chinese suppliers, Jason Furniture (Hangzhou) Co. Ltd., a.k.a. KUKA, I got a bit worried, even though they still held 13.63%. There was a bit of a sell-off of NCK in October 2018 after the AGM and the market reacting negatively to Anthony Scali's usual candour and giving the owners of the company a realistic sense of the risks to the business as he saw them - See the two paragraphs I've circled in blue below:
Source: NCK-Chairman-and-MD-addresses-at-2018-AGM-October-2018.pdf
Their SP went from $6.75 to around $5/share in around 6 weeks. I sold out during that period on concerns relating to the Scali family reducing their exposure and what looked like tough economic headwinds for the company which I thought would likely reduce its value.
However that SP drop in October 2018 followed a similar drop back in May 2017 which prompted this price query from the ASX and a "nothing to see here" response from NCK: Price-Query-from-ASX-to-NCK-26May2017.pdf On that occasion it looks like the selling was the market reacting to WAM Funds selling down NCK from a number of their LICs following a really good H1 report in Feb and a very positive guidance upgrade on May 2nd alongside a great presentation at the Macquarie Conference on the same day which had seen the NCK SP rise by about $2/share from the $5s to the $7s in 6 months - so it seemed WAM Funds judgement at the time was that NCK was looking full priced up over $7/share in May 2017. WAM's LICs had been selling down gradually already but the volumes increased when the market reacted positively to the May 2nd guidance and presentation. (NCK-Profit-Guidance-02May2017.pdf and NCK-Macquarie-Conference-Presentation-.pdf)
They bounced back from that, and they also bounced back from the next sell-off in October 2018.
The next sell-off was in response to this short two page H1 report for FY2020 that NCK released on 06-Feb-2020: NCK-HY20H1-Results-06Feb2020.pdf
On the back of that, their SP was sold down from over $8/share to around $3/share in around 8 weeks. This was also during the period in early 2020 when everything that was consumer-facing was sold off hard because of Covid-19, so Covid certainly turbocharged that sell-off.
In mid-November of the following year, 2021, the shares were trading at over $16/share. $16 was NCK's closing price on 15-Nov-2021, so they had gone up more than 5 x from $3 to over $16 in 20 months.
Then this happened: NCK-FY22H1-Results-03Feb2022.pdf; Lower Profit on Higher revenue due to margin compression/reduction, and conservative commentary and outlook statement mentioning the Omicron variant of Covid-19 still causing issues. The company had been forced to close many of their stores for extended periods due to lockdowns so the issues they were reporting were not coming out of left field - they were all well known. They had also just bought Plush in October (2021) and some people might have been a little jittery over expansion during the worst of Covid, rather than thinking that when things are cheapest is the best time to buy.
Their share price more than halved to below $8. It took 7 months, but by 16-June-2022 NCK was down to $7.42/share (from a $16/share high in Nov '21). They then went back into an uptrend and then another less severe sell-down in the first half of 2023, and back into another uptrend that took them up over $15 with a recent 12-month high of $15.69.
It's been a rollercoaster ride when you zoom out to 10 years, but the overall trend is definitely UP.
I did finally learn the lesson and I started buying again in Feb 23 when the NCK SP fell again on cautious outlook statements from AS with their FY23 H1 report and general negative sentiment around consumer spending and consumer confidence in particular. I bought a second tranche a week later as they fell further and more at the end of March '23, then stopped as I had my desired weighting. That was all in my largest real money portfolio, I never bought back in here unfortunately. They went lower of course, almost down to $8 in June ('23), but I had learned to trust management and ignore the fickle market sentiment, so I held them - and now they're back over $14 and expanding into the UK in a very measured way. Well planned, not rushed, good starting position, not a lot of risk due to the relatively small size of the acquisition compared to NCK's m/cap. And plenty of scope to implement strategies from the NCK playbook over there, as we shall see over the next few years. The indicative price was green today while they were in the trading halt, suggesting there were more punters prepared to buy NCK here than sell them on the back of this M&A news, but it wouldn't bother me too much if they do sell off. It won't be a RL opportunity for me, because I already have the amount that I want, but I might just get to add them back into my SM portfolio if they do get sold down significantly again.
If they go down, they'll come back up, much like pushing an inflated heavy duty balloon under water. The downforce will be temporary and in the absence of it, up they will come again. I haven't personally thought as highly of ADH as you clearly do @mikebrisy - but I can certainly relate to what you're saying when it comes to stocks like NCK that I do hold in very high regard - or more correctly - whose management I hold in very high regard. NCK have some other positives, but most of them stem from superior management who excel at sensible capital allocation and strategic planning and execution. And it don't pay to bet against them I have found.
Bear77
“Investing is a popularity contest, and the most dangerous thing is to buy something at the peak of its popularity. At that point, all favorable facts and opinions are already factored into its price, and no new buyers are left to emerge.”
― Howard Marks, The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor
This Investor Raised Billions by Making Complicated Ideas Simple | Howard Marks (youtube.com)
For the uninitiated, Howard Marks has a favorite catchphrase: "The most important thing is...." And then he'll go on to list and explain all those things. Over the years, this phrase eventually morphed into the title of his book: The Most Important Thing Illuminated.
The truth of it is that there is no single "Most Important Thing" - there are many. A whole book full, and more.
Howard Marks Quotes (Author of The Most Important Thing) (goodreads.com)
(14) 10 Lessons From Howard Marks of Oaktree Capital | LinkedIn
1. Risk Management
Investment isn't about avoiding risk altogether.
Risk-free investments will usually bring risk-free returns (mediocre).
Rather, we should think about managing risk instead using tools such as:
Diversification, rebalancing, long time horizon, etc.
2. We are our own worst enemies
Investors make most of their mistakes not because of informational or analytical factors, but because of psychological ones.
The internet has made tons of information readily available to all investors.
What counts is how we react to that information.
[So attributing appropriate weight to the credibility of the source, and to the validity of the information. We must discount or ignore a fair chunk of what's out there, and focus on information that is reliable and accurate and comes from reliable sources. We must also form our own opinions on whether what we are reading or viewing is right, or wrong, or is likely to be right or wrong over time given other factors that we are aware of.]
3. The difference between luck and skill
Don't follow an investor just because of great results for that year or two.
Investing is like a game of poker, not chess.
Success could be temporary due to luck.
Look into his/her investment process to determine if it makes sense.
4. On forecasting
One recurring theme from great investors is that they ignore forecasts of all sorts.
It may be tempting to scratch the itch of thinking you can get a glimpse into the future by following gurus.
But remember, a broken clock is right twice a day.
5. Human nature
The swing between greed and fear is ingrained in the market.
It often swings to excesses and then overcorrects.
6. Switching between a cautious and aggressive mode
It's impossible to know when the tide will turn.
Many investors are paralyzed by indecision when a market does turn.
Market drawdowns often change the narrative of a business, even when fundamentally nothing has changed.
7. A bull market is a bad teacher
It makes you feel invincible, throws you off your position sizing and become aggressive with your forecasts.
Whenever there's a drawdown, make use of the opportunity to reflect and refine your investment philosophy.
8. Rewire your brain to like low prices
People should like something less when its price rises, but in investing they often like it more.
If you are going to be a net saver for some time, you should welcome market declines!
9. Second-level thinking
First-level thinkers look for simple formulas and easy answers.
Second-level thinkers know that success in investing is the antithesis of simple.
It is deep, complex, and convoluted.
10. Anti-fragility
Develop a respect for tail-end risks.
Put yourself in a position where you are not forced out of the market even when shit hits the fence.
Do not:
- Borrow to invest
- Sell naked puts and calls
- Invest your emergency fund
Chagsy
Here’s a quote from a different Howard Marks
A Philippine-brothel-owning member of the House of Lords was staying at the house of a Spanish Chief Inspector of Police. The Lord was being watched by an American CIA operative who was staying at the house of an English convicted sex offender. The CIA operative was sharing accommodation with an IRA terrorist. The IRA terrorist was discussing a Moroccan hashish deal with a Georgian pilot of Colombia's Medellín Cartel. Organising these scenarios was an ex-MI6 agent, currently supervising the sale of thirty tons of Thai weed in Canada and at whose house could be found Pakistan's major supplier of hashish. Attempting to understand the scenarios was a solitary DEA agent. The stage was set for something.
You probably won’t learn much about investing but you might learn how to make a lot of money. The down side would be the risk of incarceration associated with that potential financial freedom. And getting murdered.
It’s not a well written book but entertaining nonetheless.