I believe what led to the sharp fall in the share price of Food Empire was due to the ongoing political turmoil in Ukraine, which involved Russia, as well as its past two difficult quarters. Fears of military conflicts between the two countries led to the depreciation of the Rouble against the USD. I sold off my stake in Food Empire mainly because I was concerned that the depreciating Rouble against the USD would negatively affect profits, which have already been battered down by the company’s strategic push upstream. I had also learnt more about the industry while scuttlebutting with friends in Russia, who told me that Nescafe is very popular in the country – a trend that I found while researching more about Super Group – an instant coffee producer which has market leading positions in Southeast Asia. Here are a few lessons that I took away from this investment:
1. Understand more about the risks that each investment entails – To be frank, I focused more on company specific risks rather than macro risks, which could have an enormous impact on the company. Investing in emerging markets where political stability may not be a norm would require a greater margin of safety.
2. Knowing thyself – Throughout the previous China Minzhong crisis and this one, I have started to understand myself better. Being a lousy market timer, I need to invest in stocks which I am comfortable with holding for the next 10 years. As such, I am becoming more inclined to the notion of income investing as opposed to simply value investing for capital appreciation. Thus, I will be on the lookout for more dividend stocks to add to my portfolio.
3. Scuttlebutt, scuttlebutt, scuttlebutt! – Hearing information from people on the ground helps alot in understanding my investment better. It gives me information which I may not be able to find out just through the internet. In this case, speaking to my Russian friends gave me a better indication how Food Empire is doing as compared to its competitors.
Nevertheless, I still think Food Empire has a strong brand in its core markets and will continue to keep a lookout for it. The issue now is price. Currently selling at $0.40, the company is selling at 14.5 P/E and 1.05 P/B. I would require a greater margin of safety to entice me into entering again.