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Trading Diary

Trading Diary – 23 January 2020

We’ve sold our position or position in Kogan, and while the loss was not as significant as the loss taken on Redbubble, it was still more significant than our average at 18%. This stock was another landmine that our risk management processes could not avoid. All the losses occurred in one session, and we did not have enough in the way of accrued gains to cushion the fall.

The fact that this is the second time this has happened in two consecutive months is disappointing (and frustrating!). But not altogether significant. Especially not in terms of its significance to the efficacy of our strategy. We remain confident in our approach and remain committed to its long-term execution.

At this time, we have not re-invested the capital released from this transaction. However, we are currently assessing several potential prospects and will likely do so soon.

Sell

Kogan (KGN)

The company released a business update that showed slowing growth of both top-line revenue and gross profit. The business is in the process of transitioning away from Third-Party brands. The expectation was that this process would be quicker and that revenue growth would begin to reaccelerate. The business has some exciting prospects, particularly in its Exclusive Brands business and its Marketplace business.

The company is trying to mimic Amazon by becoming less of a retailer – constrained by capital and inventory – and more of a technology business, with infinite scalability. The idea is good. However, it might take longer to transition than initially expected. It might also be more expensive to pull off than expected.

In any event, the market has cooled on the stock for the time being. The stock has fallen back into the trading range it had been in since April or May of last year. What looked like it might be the start of a new uptrend has not materialised.

The business still has a plausible path to growth, and as such, we don’t expect a full-scale capitulation in the stock. However, the time needed to prove out its new strategy does warrant some sideways action. The market is looking for proof in the form of real top-line numbers showing reaccelerating growth.

We’re not here to argue with the market. We’re here to participate in long-term, sustainable uptrends. And uptrends are created by uncertainty, and supported and reinforced by continual positive new information. As much as company management tried spin otherwise, there was nothing new or positive in the latest update.

For the time being, we’ve taken to the sidelines (again) on this one. However, this might still be an exciting story unfolding, or it might all be just hot air and spin.

By Danny Sandler

Founder of Ocean Asset Management.