Hi apenquotes, it looks like you are down with a case of the stock market blues. As most stocks trend lower over the past 12 months, some investors may feel excited at being able to buy more of their favourite stocks at a lower price, while others cringe each time their portfolio value decline. I believe investors' response towards market downturns is a reflection of the conviction they have in their own investment thesis. You are certainly not the first in VB to feel aggrieved as your stock continues to go lower as you average down. We wonder why the market behaves in this manner, as we tell ourselves that our investment thesis remains sound. As a check on myself, I frequently ask 3 questions.
1) How do I know that my investment thesis is sound?
Most investors have their thesis/reasons for whatever they purchased, the problem is there is nobody to verify whether the investment thesis is correct or wrong, or at least 'more correct' or 'more wrong.' Unlike in school where your professors may point out and discuss the weaknesses in your thesis, the market only tells you whether your predicted outcome is correct or wrong, and usually only after a long period of time. Even if you post your thesis for all to see, few may be able to give constructive feedback because few may know better. And there are also those who possess insights but do not share.
Nobody can say their investment thesis is foolproof; that is, 100% sure make money. But those who have their own proven method will make money more often than they lose. Therefore...
2) How much confidence do I have in my method?
I started by basing my buy decisions on inadequate methods (e.g. p/b, p/e low means buy). When the market tells me that I'm wrong, I reflect on my method, and make changes. But during a bull market, the market rewards us even if our methods are inadequate. It is only during periods of less market euphoria that the inadequacies of our method are exposed, and catch us by surprise when they fail to work. Since it usually takes some time for the market to tell us that we are wrong -- and time and money are precious --
it is better to not only realise our mistake when the market tells us so. Hence...
3) How can I improve my method?
The basic of investing is investment analysis. Investment analysis is difficult for most because there is no formal training for this skill. As a learner, my personal solution is to continuously reflect on my process by learning the investment success and (especially) failure of others, and then apply the learning on our own investment theses. WB's annual letter to shareholders is one popular source for learning materials. Locally, Lighthouse Advisors has -- as of this date -- 39 newsletters offering 39 lessons, and numerous investment theses and reflections on mistakes. I read them over and over again. If you want to make your own cake, you must learn how to bake.
http://www.lighthouse-advisors.com/index.htm
...
As for Sarine's business, I must say that it is something I do not fully understand, so I'm unable to offer any insight. Its fortunes could turn around in years to come. I have no idea.
But with regards to any investments in general, the key aspect is knowing how much the company is going to earn in the next 5-10 years. With that, you can decide whether you want to pay more or less for those earnings. If you can't be sure about its earnings -- which means this business is not in your circle of competence -- you are free to walk away. Plenty of other companies to prospect.
Even if you cannot forecast earnings, you can still play the game by giving yourself plenty of MOS; by buying at very low valuations. Usually the kind of prices that are only available during market shocks. Personally, I consider anything more than 20x p/e to be very expensive. So 60x p/e wouldn't even make sense to me at all. There are many people who have made money buying high p/e stocks, but I don't know how, so I'm never going to try.