Dissecting A Losing Trade

Taking a loss in investing hurts. There is  a mourning period of a few days after I take a loss where a gloom seems to hang over me and I constantly think about what went wrong. Fortunately, losses are also the best way to become a better investor if the proper lessons are taken away.

I took a position in DOLE about two weeks ago upon the announcement of a $200 million share repurchase, which amounted to about a third of the float. I have had very positive experiences with companies that repurchase a large percentage of their shares. I have never seen a company announce a share repurchase for a third of their float.

Aside from the large share repurchase there appeared to be value in the shares of Dole. The market cap was less than a billion dollars and net debt very low. There is as much as $600 million in underutilized real estate that could be sold. Dole is cutting expenses and should be able to produce over $250 million in EBITDA once the cost cuts are in effect. In addition to the seemingly cheap stock and enormous repurchase, an insider owns over 30% of the shares. The upside seemed very compelling.

There were also some aspects of  Dole that I chose to overlook. I prefer to own companies whose businesses are less cyclical and produce steady free cash flow. As a commodity producer in the midst of a restructuring Dole did not meet either of these criteria.

Yesterday, Dole announced a suspension of their share repurchase  two weeks after it was announced. That sort of a  turnaround is unprecedented and could not be expected. However, it was the aspects of the company that I chose to overlook that led to this turnabout.

Was my purchase of Dole an unforced error or a case of  "shit happens"? It is possible to make  a case for both sides, which will probably lead to a few more days of contemplation.

2 comments:

Shubh Desai said...

Do you think DOLE is a better buy now with such a price drop?

Tsachy Mishal said...

The stock does not fit my criteria for the reasons I outlined plus now there is no catalyst. I am not interested. Does it look cheap? Yes