Ann: Trading Update, page-23

I have been following SDI for a number of years. I even attended the AGM twice as a visitor just to get a feel on the management, factory and office facility. However, I had never been attracted enough to ever pull the trigger.

What happened on SDI on Friday (the unexpected profit downgrade) is a reminder to everyone about the importance of independent critical thinking.

Some of the names that I see in the SDI forum are familiar names that I have seen in other companies that are attractive to me as a value investor.

I admit that I am also usually reassured when I find out that people whom I have a lot of respect of, are fellow shareholders in my investee companies.

However, instead of being complacent to this confirmation bias, we should be extra careful and scrutinise our investment thesis even more thoroughly than usual.

The other thing that had caught me in the past is investing relatively small amount in things that I don't have high conviction in. In the past, I usually did this in the name of diversification.

However, what I found is, even if the stock selection is correct, the rising price of my relatively small position was never enough to make me excited, in fact sometimes I even feel the annoying "winners" regret, whereby I kick myself for not putting more money.

On the other side of the coin, when things go wrong, it can go wrong quite quickly and the loss size can also be quite large. The losses caused by the small initial position can be relatively quite large and the effect on the portfolio return is also much larger.

Back to SDI,

If this downward trend is not quickly reversed in the second half of FY2018, then I'm afraid SDI still has further room to fall.

Understandably, this profit downgrade has also caused the market to question the credibility of management.

And finally, if NPAT can easily fall more than 60% from $3m in the HY2016 to $1m - $1.3m in HY2018 (as per the profit downgrade), then one has to question the actual value of the so called SDI's intellectual capital. Maybe the moat is not really that wide after all....