Good Articles to Share
3 Lessons To Learn From My Padini Investment - Alex Tan
October 1, 2016 | Alex Tan
I will usually write about lessons to be learned from my investment buys and sells rather than giving out recommendations on which stock to buy. This is to prevent myself from getting into unnecessary, time-wasting and unproductive arguments with other parties. I have seen so many seemingly good stock market players get caught in this situation and spending their time bickering with one another. I won't want to get myself involved in this kind of situation.
I started accumulating Padini Holdings Berhad in July 2015 when its share price got hammered significantly by the market, falling from over RM2.00 to less than RM1.40. Analysts were busy issuing sell calls due to the weakening of Ringgit (Padini is a net importer), implementation of GST, more aggressive competition from H&M and Uniqlo etc.
My average purchase price was RM1.30 and the share price of Padini is trading at RM2.85 as of writing this. Not to forget that Padini has paid out RM0.14 of dividends per share to me, this translates to a return of 130% in slightly more than a year.
Note: I am still a satisfied shareholder of Padini as the market has yet to realize its full value.
I deem this investment of mine as a very successful one. So what can I learn from this particular investment of Padini, so that I could repeat the same philosophy on my other investments to achieve the same level of success?
#1. The market is efficient in the short term
The analysts were quick in giving sell recommendations due to the above three core reasons. That implies the market is always efficient to reflect what's happening in the short run.
However, the market is not always right about the long term prospects of a company. More often than not, it doesn't even care about what's going to happen in 5 years' time.
To be a successful investor, one needs to be right about the long run (3-5 years for myself) and make use of the short term volatility as an opportunity to get in at lower prices.
#2. Right management is the key to prove the market wrong
It was true that Padini was facing hiccups in its profitability, despite growing sales, mainly due to the above 3 obstacles. Fortunately, the management reacted with the right business model to retain or attract even more customers to shop at its outlets.
For instance, they decided not to increase the selling prices and absorbed the GST. This move was extremely laudable as they bundled with many more value-adding offers to the customers. In the midst of lower net disposable incomes of the Malaysians, we will certainly be more cautious in spending and look for more values in our purchases.
#3. Ignore share price volatility after purchase
In between August 2016 and September 2016, Padini's share price fell from RM2.90 to RM2.55. Many would have panicked and sold their holdings. See what happened next, the stock eventually rises to more than RM3.00.
If you don't look at the share price that often, you wouldn't even notice that it actually fell to RM2.55! Hence, the amount of research determines your confidence level in a company. Well-prepared investors will always wait for the market to realize a good company's true value. Of course, I believe Padini's value was and is more than RM2.55.
http://www.valueinvestingstock.com/single-post/2016/10/01/3-Lessons-To-Learn-From-My-Padini-Investment
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Discussions
3 people like this. Showing 11 of 11 comments
Take note last year, 2015, Padini was trading at RM1.30 for some time. Easy to buy at RM1.30.After purchase, just keep.
Padini all the while recommended as good dividend stock, stable price though others fall. No need deep prediction
Yeah, my average also RM1.30, same as many who buy in last year
2016-10-01 16:00
Thanks to Alex Tan, for sharing your study in PADINI, of which they are really help in my future investment dilemma .
#1. The market is efficient in the short term
#2. Right management is the key to prove the market wrong
2016-10-01 16:43
I started buying from Sept to Nov '15 at average price of 1.60. Disposed 20k shares for 20k profit. Still keeping 10k shares for investment. Padini is a good example of rising dividends = rising share price.
2016-10-01 22:01
My comment is only pinpointed on point 2. I don't think you can use that example where mgt absorb GST to validate it as the right decision because it is just as easily to turn that into a bad decision if Padini cripple it's margin going forward and unable to increase their selling price in the future.
On the other hand, it can just as easy to say another retail company made the right decision by doing the opposite, instead of absorb GST they pass all the cost to consumers to maintain their margin, and fortunately the inelastic demand means end users happily take on the extra cost.
Another perspective I'll offer is, Padini do not have a choice, not because the mgt choose the right model. Padini is not in the position to increase price or pass on GST cost without killing themselves, as Buffett puts it, they have to pray if they are going to hike their price, because retail is a cut throat moatless industry.
2016-10-02 08:15
No choice but still has to choose , seemingly it success to make sure Padini back on the right railway.
2016-10-02 11:57
What have I learnt from padini?
Padini has a lot of cash, pay good dividend
No doubt a good company
But I just dare not be greedy when others are fearful
Why?
One simple reason ,
I do not see I can make a quick gain here , so I didn't buy even though I know I should .
Conclusion:
Many times you can't gain because you can't wait
2016-10-02 18:44
Normally I review the business 3-5 years ahead, and some of the negative I see in retail/Padini:
1. Padini has included 2 Hari Raya Festival Sales in its latest FY, may be hard to repeat the record sale and profit;
2. GDP slowdown from 5% to 4%p.a., more are tightening their belts
3. Household loans is 89%, substantially in properties, tie up cash, need to service loan and interest, and rental dropped significantly. Hence, reduce purchasing power of many.
4. Use to enjoy 6-7% when price is about RM1.50. At current price, not sure can enjoy such high dividend for long term. Many bought Padini for high DY.
5. Glut in retail properties.
2016-10-03 15:13
I actually bought when it fall to 2.55 but my entry price 2.67. Took profit at 2.96 with a cool 14-15% in less than 2 week...Looking forward, say retail properties price is depressed which is good for retail store as their rent is cheaper. Plus Padini is a good balance of fashion and cheap.. So those looking to tighten their belt might opt for Padini instead of more expensive brands.
2016-10-04 20:59
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newbie92
Average cost RM1.3, Padini trading almost at buttom, how can u predict so correctly? Lowest price for Padini last year is RM1.28, mean u buy 1.28,1.29 and 1.3? Hope you not cheat reader.
2016-10-01 15:42