@Rick a fairly tricky area Rick. I was fortunate enough to pick Freedom Foods as an oddity before she blew and have written about that on SM before. I would put NXL as another that i thought was odd. why odd? basically inconsistency in the narrative or inconsistency in the numbers. i have picked a couple from the cashflow statements when the cash diverged from profits and the narrative. but also how management narrative changes from result to result over time. for example, what was once almighty important becomes a non-issue, and vice versa.

of course, there have been errors when i thought i saw issues and steered away (wrongly), the two most famous being WTC and XRO. thinking about this ex-post, the differences were that the Xro and WTC issues were pure biases, i saw some people i had little respect for hanging around the business, it was not based on inconsistent numbers or variable management narrative. so my conclusion from that is, like in a court case. build up evidence that can stand up in court, not what you wish, imagine or like to happen. be objective.

i would class NUF and KGN as companies I have had issues with.

@Rick this was one of my biggest $ losses ever on the ASX. I didn’t see it coming until shares were suspended.

There was one (actually 2) early warning sign I missed. An initial inventory write-down, which was “well-explained” at the time.

However, as a low margin (as it turned out negative margin!) business, the connection I failed to make is that in a low margin business, inventory control has to be first class. The initial (and then the subsequent second) inventory write down was a clear signal that this firm was growing manufacturing facilities and volumes too fast ahead of building its supporting supply chain management capabilities.

My hypothesis is that the alleged fraud was simply an attempt by management to buy time and put the right controls in place.

This is one of the examples I referred to recently where I allowed “broker views” to also lull me into a false sense of security. This contributed to my missing an earlier opportunity to only lose 50% of my capital versus the 90% odd that I lost. It’s been a valuable lesson.

I guess the main lesson is that, when confronted with a clear unexpected operational failure, adopt a mindset to look for a canary in the coalmine. Don’t take the story given at face value, unless you have strongly earned trust in management. I had no basis to believe the $FNP management team were operationally capable, and I should have been much more diligent from the first signs.

Being an active investor means just that, be active in understanding your holdings!