Personally, I can't bring myself to believing that anyone would...

Personally, I can't bring myself to believing that anyone would be dumb enough or naive enough to buy shares solely on the basis of what they read on an online stock discussion forum, without conducting some first principles research of their own.

What they may seek to do - as most of us do - is have their existing views refined (either positively or negatively, but admittedly mostly on a confirmatory basis) by what they read.

But for people to - as you imply - tap into a stock discussion thread without having any firm opinion on the stock in question, and then to buy that stock - on which they have conducted no research themselves - simply because some other posters had a BUY sentiment accompanied by positive commentary... I am sure that does not happen.

Considering that you have been in the market for a long time, I am quite surprised that you don't believe that there are people out there who are more than willing to buy shares solely based on what they read on a stocks forum.

I wouldn't go as far as you as describing them as dumb and naive. There are people out there who are genuinely interested in learning on how to make money in the market and go to stocks forum such as HotCopper to learn. When they discover posters who regularly post in logical manner and are able to express their thinking clearly, it is natural for them to follow these posters and imitate their actions.

If the impression that I got by reading SDI forum that there are some people who haven't done their own homework before buying SDI, is incorrect, then I'm glad that I was wrong. But if there are indeed some who haven't really done their own analysis and bought simply because some leading posters had positive views on the company, then they should use this experience as a reminder to be an independent thinker.

In fact, I know some people personally who use a much dodgier method to decide whether to buy a stock or not, they flip a coin!



No, the earnings of ARB and BRG didn't fall as much during their "tough periods", but their premium valuations at the time meant they weren't priced for any falls at all. The result was that their share prices fell by disproportionately more than the fall in their earnings (by as much as 40% to 50% in each case). REH was similar impacted when its earnings disappointed between 2011 and 2014. So, its not just changes in profitability that influences the value-at-risk; the starting valuation point matters just as much.

In the case of NCK and ONT, when these companies met with adverse events our of left-field events, the extent of the financial deterioration was ~25%. Their share prices fell by similar amounts.

Again, value-at-risk is not merely a function only of the extent to which financial performance falls short; it is also how a stock is priced at the time of the under-performance.


Put another way, given the valuation multiples that are being applied to ARB, BRG and REH, I shudder to think what the share price response would be if those companies experienced an adverse event (and I express those misgivings as an owner of each of those companies).

So, sure SDI's moat is not the same as ARB's or BRG's or REH's.
But - again - the stock is not priced like it is.

I should have written more clearly in my earlier post that I was referring to the volatility in the earnings, not the volatility of the share price.

I am fully aware of this point of yours and I welcome these left field events as they provide opportunities for me to top up.




In each of those cases, even as a shareholder I could quite easily provide countervailing arguments, for example, ARB and BRG both have significant offshore activities and with the end of the mining boom came sharp falls in the A$, so there were some natural hedges built into their earnings. In REH's case, the indifferent earnings performance between 2011 and 2013 wasn't cost-related; it was that the top line that simply didn't grow. As for NCK, it didn't face the same structural pressures as other "retailers" that performed dismally (all those new houses and apartments that were built needed furnishing); and I remember when SUL and JBH were experiencing the glorious tailwinds of new store maturation... its hard to not report impressive earnings growth when you - on a fixed cost base - have new stores attracting more and more foot traffic, and hence revenues - all off a low base. (In fact, I remember when the likes of NBL and SFH were rolling out new stores in the early- to mid-2000s... even those crappy retailers looked like retail rock stars at the time.)

And ONT lost a major source of easy revenue when the CDDS was suspended. As did BRG when it lost Keuring. Those situations of breached moats are pretty analogous with the erosion of SDI's amalgam revenues, are they not? (In fact, in SDI's case, the amalgam loss is occurring over a number of years, whereas ONT and BRG had sales disappear in quite sudden fashion.)

I am not sure how to comment.

Earlier you said that these companies' earnings growth from 2011 - 2017 were not that stellar.

And I answered by saying that it's not too bad of an achievement considering that each one of them was facing a "problem" of their own.

And now, correct me if I'm wrong, I get the impression that you are saying that their achievements were not that commendable because:
- ARB & BRG were helped by sharp fall of A$
- REH's revenue between 2011 - 2013 was flat (2 years out of 7 years period that you chose)
- NCK didn't face the same structural pressure as other retailers. I don't have the data, but how many home furnishing retailers in Australia do you think managed to perform better than NCK in the past few years? My guess is not that many.
- And your comparison of NCK and NBL & SFH was even more misplaced:
a. NCK gets money first before delivering the goods in 10-12 weeks time. NBL & SFH had to purchase for their stocks in advance before getting the money from their customers much later.
b. NCK is building its property portfolio ala REH. Most of the properties that it purchased had gone up in value. NBL & SFH leased expensive stores from shopping centre giants such as Westfield.
c. NCK doesn't hold inventory besides its showroom inventory. NBL & SFH has to fund their inventories from their working capital.
- There are other differences, but this is why I never hold NBL & SFH, and is currently not interested in RFG, ADH, BLX or SUL.
- Considering that ONT and BRG lost a big hole in their revenue in a sudden way, isn't it even more impressive that they were able to fully recover their lost revenue in a relatively short period of time? SDI on the other hand, knows what is coming and yet is still able to surprise the market with a profit downgrade.



Sure, but I think you are committing the logical fallacy along the lines of "Do-what-Tiger-Woods-did-and-you-can-be-just-like-Tiger-Woods". There are tens, nay hundreds, of thousands of talented and aspiring golfers who applied themselves as best as they could during their careers, and yet - instead of victoriously holding claret jugs aloft on the 18th green at Augusta - they are selling discounted golf gear in Golfworld Golf Marts or Drummond Golf outlets.

Similarly for people running their own business: for each Roger Brown or Alan Wilson, there are thousands of business failures in which the owners - had they invested all of their wealth in their own companies - would be the opposite of wealthy today.

Holding up a few isolated examples to support your view masks the vastly greater number that disprove it.

I don't think I'm committing any fallacy at all. On the other hand, I believe it is you who do not really understand my point.

I am not trying to do what Tiger Woods did at all. Instead I'm trying to piggyback Tiger Woods.

I am not trying to recreate ARB or REH. If I'm saying that I'm going to open a business and that I will put all of money into that business with the hope that one day that business will become ARB or REH, then yes please criticise me for committing that fallacy.

But, what I'm doing is buying part ownership of already successful businesses such as ARB & REH. What I'm doing is I'm putting all of my investment money into a handful of ARBs and REHs, such that my investment result will be the average of the Browns and the Wilsons.



Does that mean that you are happy to add to your current holdings in ARB, BRG, ONT, NCK, REH or RWC today? If not, can I ask what do you do with surplus cash that your portfolio generates?

No, I have no intention of adding anything in that list at today's prices. The surplus cash is currently being accumulated, waiting for opportunities to present themselves. I am confident that my patience combined with my selective targets will one day be rewarded.

The last thing I want to end up in is to be surrounded with fat elephants and have no bullets left in my rifle, because I have been using them to shoot at rabbits.

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