3 Lessons I Learned From My Recent Investment Exit

Today I am going to share the lessons I learned from one of my investment exits from a small-cap company. The aim is to help you understand how a horrible result followed by a series of changes in management, along with no disclosure from the company, is a classic case to exit.

Moreover, there are no clarifications from the management as to what is going on in the company. However, the purpose of the article is to learn. So we don’t keep on making the same mistakes again and again. The exit is entirely in line with my strategy of the right time to exit the stock when I lose faith in the management.

First Let me Share My Investment Details

So the stock in focus is Take Solutions Limited, and I invested in it as follows:

I started investing in the company since December of 2018 till the last fall for the COVID-19 in March 2020.

I was accumulating the stock for a simple reason that the company is expected to have good growth, a niche business that can demand better OPM, management experience for the sector, available at a reasonable valuation, etc.

Bad Results with Change in Management

On 11th June 2020, the company reports an EBIT loss-making Jan-Mar 2020 quarter.

(Click on image to download the results PDF File from BSEIndia)

Again, this is not EBITDA loss but an EBIT loss. Here is my article to understand EBITDA and EBIT. The quarterly loss was so big the whole of 2020 turns into a loss-making year.

So when the company makes a loss and that too for the whole year, I keenly keep an eye on the earnings call and management commentary.

In my investment portfolio, Zydus Wellness, as well as Lupin, reported a loss-making quarter, but the full-year earnings weren’t showing a loss. I am also looking for management commentary on what went wrong and how they will rectify things moving forward.

The information is crucial for me to remain invested.

With Take Solutions, there was no significant update apart from Vanilla commentary for COVID. Moreover, after the bad results on 11th June 2020, on 18th June, two of the promoter holding companies sell their entire stake.

Other companies that purchased the stake is also re-classifieds as a promoter.

However, the more important question is, WHY?

And then other minor promoters like DRP Consultants Pvt Limited also sold off their stake of 0.07% in the company.

The majority of other promoters in the company has sold off.

A clear sign of something is cooking within the company but not being shared with the shareholders even now.

Critical Lessons from My Investment Exit

I waited for almost 15 days for the update from the company as to what is happening. Finally, I decided to offload. So I sold off my entire stake in 2 parts on the 2nd and 3rd of July at an average price of ~₹50.

The total quantity I owned was 2600 at an average price of ~₹85 and sold everything at ~₹50, booking a loss of ~₹90,000.

So here are the key lessons to learn from my investments and loss in “Take Solutions.”

1. Keep a Keen Eye on Quarterly Results

Earnings and results are the most important aspect to track for an investor.

Always go through the quarterly results update for the companies where you have an investment or prefer to invest. I use these websites to keep me informed of updates from the companies.

When my watchlist of companies shares an update, I get an email. Moreover, I keep an eye on the results announcement day for the company and always go through the results thoroughly.

2. Be Ready to Book Loss When you are Wrong

Anyone can be wrong in the market, and there is no shame in accepting it. Mr. Market is smarter than the smartest investor in the market.

The primary reason for my investment in “Take Solutions” was its growth story, along with its niche service catering to the Pharma sector.

However, if the management is not stable, and focusing on growing the company, there is very little an excellent past performance can help in future growth.

As long as Mr. Srinivasan is there, they can turn things around, but I don’t believe in turnarounds.

3. Keenly Watch Company Updates

Results can be good or even bad, but if the company shares an update with the shareholders, it gives me as a shareholder, the needed confidence to remain invested in the company.

Lupin reported a horrible Dec-2019 result with a huge loss. However, the company instantly came up with why the results are so bad and what happened. So even when 20% of my portfolio is in Lupin, I wasn’t worried.

So results update are the most important aspect to track, but one should also keep an eye on other company updates.

Final Thoughts

I strictly follow no average down policy. To err is human, and we tend to violate our own rules. However, losses like these help us get back to following our rules.

However, the positive way to look at it is, I lost majorly on my initial investment only. The accumulation was almost at the no-loss no-profit exit.