Cautionary Tale (DWRI)
Anyone worth his salt can write about his fabulous successes -- but don't the experts always say that we learn more from our mistakes?
It sure appears that Design Within Reach (DWRI) has been my biggest investing mistake in quite some time -- and the worst part is, I should have seen the writing on the wall back when I made my first purchase. If I could have just been a reader of my post about purchasing DWRI instead of the author. I look back at it now and see too much enthusiasm. Too much personal appreciation for the products and the concept, not enough attention paid to the competition, the marketplace, or the financials.
To be fair to myself, all of this is much clearer in hindsight than it was at the time, a mere four or so months ago when I opened my (thankfully small) DWRI position. But if I had been more cautious about making the purchase, I might not have pulled the trigger.
And you know what? I'm not going to sell.
Of course, if I had any significant amount of money invested in DWRI I would sell to free it up -- but I'm looking at a stock that was already down 60%, and has now fallen a further 40% this evening in the crazy after hours trading. After this freefall, it's hardly even worth paying the commissions, even though I would get some satisfaction from drawing a little slash through the DWRI in the top right corner.
I won't even post the chart here -- it's too depressing, it looks like something Alberto Tomba would muscle his way down to win the gold medal in the downhill.
No, unless I have a compelling tax reason to close this position, which I opened up around $18, I'm going to hold onto it and force myself to gaze upon this mistake right up near the top of my portfolio (damn alphabetical order!) and remind myself to think thrice before buying into a newly public company or a company whose product I personally like.
Sure, it's great (and Lynchian) to buy into companies that you have a personal interest in. I find most of my investments interesting, otherwise I might as well buy an index fund. But it's important not to let my personal interest cloud my assessment of the company's prospects.
And the other reason I'm keeping DWRI as a cautionary tale is that I need to remind myself to buy in bites -- not to try to swallow a full position in a company during my first enthusiasm at finding and researching what looks like a quality investment. With DWRI I thankfully followed that rule and bought just a partial position, and things went quickly downhill as it became clear I was wrong about the business so I never re-upped. Phew.
I'm still not sure what went wrong with the DWRI business plan -- I think it's a combination of a lot of things. Maybe the marketplace wasn't as big as I thought, and I definitely underestimated the amount of competition -- not just from other big companies, but from niche local retailers, Design Within Reach is surrounded by high-end designer shops at the top, Crate and Barrel and Ikea at the bottom, and lots of other contemporary furniture sellers that are online or otherwise trying to build a national presence. I think they have an advantage over some of them, but clearly it's not enough of one or they're doing something else dramatically wrong. They even seem be be cannibalizing themselves, as their dramatic growth in showrooms has coincided with significant slowing in growth of higher margin online and catalog sales.
Their company line is that the online and catalog presence is a marketing cost, and the showrooms are the real focus -- I'm not sure I think that's a great idea. The rapid showroom buildout has been quite expensive and is expected to continue for some time -- at least, unless this beating from the stock market causes them to change their plans.
Maybe it's just poor source planning or bad luck -- they're dependent on European manufacturers, so the weak dollar was a problem and then the costs of shipping became a problem with high fuel prices.
But here's where I stop -- I should have taken the risks more seriously, and, as I've learned more over the last month or so, and especially with the disastrous earnings and guidance issued today, I was just plain wrong about this business and management. I've been wrong plenty of times before (see WOLF for the second-worst example), and I'll be wrong some more, but hopefully for different reasons.
It sure appears that Design Within Reach (DWRI) has been my biggest investing mistake in quite some time -- and the worst part is, I should have seen the writing on the wall back when I made my first purchase. If I could have just been a reader of my post about purchasing DWRI instead of the author. I look back at it now and see too much enthusiasm. Too much personal appreciation for the products and the concept, not enough attention paid to the competition, the marketplace, or the financials.
To be fair to myself, all of this is much clearer in hindsight than it was at the time, a mere four or so months ago when I opened my (thankfully small) DWRI position. But if I had been more cautious about making the purchase, I might not have pulled the trigger.
And you know what? I'm not going to sell.
Of course, if I had any significant amount of money invested in DWRI I would sell to free it up -- but I'm looking at a stock that was already down 60%, and has now fallen a further 40% this evening in the crazy after hours trading. After this freefall, it's hardly even worth paying the commissions, even though I would get some satisfaction from drawing a little slash through the DWRI in the top right corner.
I won't even post the chart here -- it's too depressing, it looks like something Alberto Tomba would muscle his way down to win the gold medal in the downhill.
No, unless I have a compelling tax reason to close this position, which I opened up around $18, I'm going to hold onto it and force myself to gaze upon this mistake right up near the top of my portfolio (damn alphabetical order!) and remind myself to think thrice before buying into a newly public company or a company whose product I personally like.
Sure, it's great (and Lynchian) to buy into companies that you have a personal interest in. I find most of my investments interesting, otherwise I might as well buy an index fund. But it's important not to let my personal interest cloud my assessment of the company's prospects.
And the other reason I'm keeping DWRI as a cautionary tale is that I need to remind myself to buy in bites -- not to try to swallow a full position in a company during my first enthusiasm at finding and researching what looks like a quality investment. With DWRI I thankfully followed that rule and bought just a partial position, and things went quickly downhill as it became clear I was wrong about the business so I never re-upped. Phew.
I'm still not sure what went wrong with the DWRI business plan -- I think it's a combination of a lot of things. Maybe the marketplace wasn't as big as I thought, and I definitely underestimated the amount of competition -- not just from other big companies, but from niche local retailers, Design Within Reach is surrounded by high-end designer shops at the top, Crate and Barrel and Ikea at the bottom, and lots of other contemporary furniture sellers that are online or otherwise trying to build a national presence. I think they have an advantage over some of them, but clearly it's not enough of one or they're doing something else dramatically wrong. They even seem be be cannibalizing themselves, as their dramatic growth in showrooms has coincided with significant slowing in growth of higher margin online and catalog sales.
Their company line is that the online and catalog presence is a marketing cost, and the showrooms are the real focus -- I'm not sure I think that's a great idea. The rapid showroom buildout has been quite expensive and is expected to continue for some time -- at least, unless this beating from the stock market causes them to change their plans.
Maybe it's just poor source planning or bad luck -- they're dependent on European manufacturers, so the weak dollar was a problem and then the costs of shipping became a problem with high fuel prices.
But here's where I stop -- I should have taken the risks more seriously, and, as I've learned more over the last month or so, and especially with the disastrous earnings and guidance issued today, I was just plain wrong about this business and management. I've been wrong plenty of times before (see WOLF for the second-worst example), and I'll be wrong some more, but hopefully for different reasons.
Labels: DWRI
This article posted by One Guy @ 11/10/2005 11:00:00 PM 1 comments
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