The dangers of investing in consumer brands in niche cyclical end markets.

A case study in me getting rekt by the founder

Once upon a time there was a younger me that became enamored with an outdoor sports brand called Leatt corp with explosive earnings growth in a founder let company that treated its capital stack well. It was in my opinion the hottest brand there was in outdoor sports for a public microcap, and to make matters worse, I went through a full year of observation and a full quarter and a half of ownership prior to this truth persisting so I had time to add to it. Eventually what happened is demand turned within their largest sales channels. I was rekt.

May I note there was a fund based in South Africa that purchased shares from Chris Leatt at this time in a small but premium private placement price to market. For a period of time, Chris was making active open market sales. I bought a fair amount of these, making it likely that I was a part of the founders exit liquidity. May I also note that I did not endure the full length of the drawdown, I changed my mind quickly and without much of a fight to recoup my average. In Leatt’s defense their balance sheet isn’t as worrisome as their income statement as now there’s a bunch of cash flows onto the balance sheet versus reinvestment into inventory like before

What this ultimately led to is a much greater fear of anything where demand is not as secure for the activity a company is engaged in. Perhaps of cyclical demand much more greatly. This experience likely helped lead into an omission of DRX.TO at $2 CAD (double rekt).