The past few weeks weren’t the best of weeks for shareholders of Noble.
Noble’s share price went tumbling down from $1.34 to $0.44, which is barely 33 percent of its recent valuation! The sudden fall in share price was attributable to two significant events:
- management profit guidance which led to fears that Noble’s troubles have yet to subside
- a credit rating downgrade by S&P
The fall of Noble, as the largest commodities trader in Asia, from the brutal attack by Iceberg Research acts as a reminder for investors like myself to learn from and avoid investing in rogue companies.
It reminds us of three important lessons that every investor should learn from and take your investment strategy to the next level.
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Three Lessons That Investors Should Learn From Noble’s Downfall
1. Invest In Companies That Rides The Macro Trend
Another reason for Noble’s downfall was the poor outlook for the industry that Noble is in.
In the past few years, commodity companies have been bucking the macro trend as the slowdown in the global economy halted the rate of consumption of commodities. As such, commodity-related companies like Noble have been suffering from a poor macro outlook.
The macro trend will determine the general direction that your company of interest takes. This is especially true for commodity companies like Noble. There are barely (if any) commodity companies that managed to outperform in a poor macro environment that doesn’t favour commodity companies.
Thus, it is important to understand the macro trend as an investor and learn to ride the macro trend in order to achieve the best returns.
2. Invest In Companies With Good Management
The management of a company is akin to the character and attitude of a person.
Just like how a person’s character and attitude determines who he is, a company’s management determines the values and beliefs of the company. Since Iceberg Research published their report, Noble has been exposed for accounting issues and financial manipulations. Would a good management resort to such moves to manipulate the company’s financial performance to make it look good on paper and put the shareholders through such a rough ride?
Then ask yourself this question. Would you hire someone with poor character and poor attitude? If you wouldn’t, then why would you invest in a company with poor management?
3. Invest In Companies With Strong Fundamentals
Even before Iceberg Research published its report on Noble, there were already visible signs that the company was struggling fundamentally.
If the company that you have vested interest in is one of strong fundamentals, there should be telling signs for you to identify it. For example, growing revenue, growing net profit, above average ROA and ROE could be an indication of a company with strong fundamentals.
While these ratios and indicators are not fool proof, they allow investors like yourself to make ‘health checks’ on the company to sound out for early signs if the company’s fundamentals have gone the wrong way.
Investing in stocks with success characteristics can be simple. It doesn’t have to involve chasing real time news and market trends daily.
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