Friday, October 12, 2007

When Setback occurs in a Business

Business setbacks happens.

Let's look at this recovery issue on the broader sense and let's focus on the investor HOLDING a stock, a company with a a strong business, and let's say a strong business having a setback.

That's the focus of this posting ok?

What should the investor do when the company's business suffers a setback?

That can always happen yes.

Now should the investor allow time to let the company business recover?

The simple argument is that if the business is good, surely the business can and will recover. Yes? That's simple cow sense.

Time should always be used to the investor advantage.

I fully agree.

However, in my opinion, time should NEVER be a disadvantage to the investor too! That's the simple dark side of the time issue.

For me, holding a stock and waiting for the company business to recover is probably the worse thing one can do.

I can name off hand easily some listed stocks whose business and even its share price failed to recover. Abric, Bintai and Mieco Chipboard. Holding. 3 well known stocks which had a solid investment reasoning during its heydays and waiting for the business to recover would have yielded a huge dent in the investor portfolio.

Oh yeah... some stocks have indeed recovered and performed remarkably well.

But do we want to take the chance?

And not forgetting the damaging psychological effect on the investor during the initial period when the company business endures and suffers during the setback in business. Cause we know very well that there is a very strong possibility that the stock price will be hit hard and the longer the company's setback continues, the longer the stock price would suffer.

And this is simply no good at all to the investor mindset and most of all, it is simply damaging to the soul!

Let's get real, we are but normal folks. We ain't no super duper investor like Warren Buffett. And more importantly, we have limitations to our piggy bank.

Hence holding on a stock whose business faces a setback is a terrible option because for most average investors, it is simply terribly difficult to gauge the exact problems of the business setback.

Well, if it is a temporary setback, everything should work out great.

However, what if the setback becomes a long term thingee? What if the setback takes much longer?

Does the investor wants to sit on their investment and wait (or is it HOPE) that the company business would recover?

Take my other favorite mumbling on Mieco Chipboard. The weakness in the company's business fundamentals was first noted on 24th May 2005. Price then for Mieco was 2.89. Price of Mieco now is only 0.89. The stock needs to gain a whopping 2.00 just for the investor to recover back the cost of investment.

See the danger or rather the dark side of the time issue?

Yeah, time is always the enemy of the terrible business!

Any comments?


jitseng said...

this is the nature of business.Creative destruction will eliminate the weak one and allow the godd one become better.investing suceessfully require super manager and culture to change.For eg Nokia,change from timber-based to high tech and still elvoving.