I walked out of Food Empire Holdings office. I let out a sign of relief. It was early 2015.

Let me rewind.

Food Empire Holdings is one of the biggest sellers of instant mix coffee in Russia under a popular MacCoffee brand. When the Russian-Ukraine crisis unfolded back then, the rouble currency collapsed. Food Empire shares got hammered. And I was sitting on paper losses of more than 36%. It was painful.

Like any normal person, I was terrified. I wish I could hide my head under my pillow and cry. Was I wrong this time? The “voice” dominated my head: Just sell. Cut your losses. Move on.

A close investing friend even said:

The easy way out of this stock bashing is to listen to him and sell the stock. Click one button, take the loss, move on. But deep down, I knew I wasn’t reacting to new facts about the business. I was reacting to fear.

Instead of panicking, I went back to my research. I forced myself to ask three honest questions.

1. Has the business fundamentals changed?

Food Empire was still one of the biggest instant coffee players in Russia. No competitor had taken their shelf space. It retained its important customers. The rouble crisis was real. But what Food Empire faced was a currency problem, not a structural business issue. Sure, its shares got hit. But I knew its business was still fundamentally sound.

That led me to my next question…

2. Is the free cash flow still intact?

This is a critical indicator. Cash flow is the lifeline of any business. A company generating cash does not die overnight. During my research I found even through the global financial crisis years earlier, Food Empire had kept a tight grip on credit extended to distributors and was aggressive in collecting receivables. Management knew how to squeeze cash out of a bad situation.

Credit: My Food Empire Holdings (FEH) Management Meeting Notes 2015

This brought me to my third question - and why I ended up in that meeting room.

3. Is management navigating the problem?

One afternoon, I walked into a huge meeting room. I could still remember the faint scent of aged wood filling the air. I could tell the room was used for the occasional serious discussions made behind closed doors. Then the founder walked in. With my notebook in hand, we spoke at length.

What I heard next gave me confidence. During the Russian-Ukraine crisis, the company consolidated their distributors in Russia. The company said it will even act as distributors themselves to fill in the gap. This is to keep the collection cycle moving and to improve cash flow.

Credit: My Food Empire Holdings (FEH) Management Meeting 2015

This was exactly what I wanted to hear from management under pressure - quick execution and prudent. In other words, the company knew how to manage their cash flow.

I picked up signs they were very prudent during tough times -- knowing how to keep a tight control on credit extended to distributions and were very aggressive in collecting their payables. This allowed them to squeeze out cash flow during the worst of times. It had good business execution.

I walked out of Food Empire’s office that day, knowing the business was not broken. Mr. Market had simply offered me a massive discount. At that moment, my fears subsided. I scooped up more shares - in January 2015, and again in April 2015, right at the bottom of the pain.

Then I waited.

By 2016, shares of this Russian company began climbing back. In two short years after I was sitting on a 36% loss, the stock began to recover. And I walked away with a tidy profit.

I know, I know. It can be nerve-wrecking to see your shares nothing but red. When share prices plunge, the voices in your head will start - get out, sell now. It’s normal as an investor. I still get that too. If you are sitting in an unloved, hated position right now that’s left for dead - and you are feeling nervous about it, I understand. I still get that feeling too. That’s investing.

After investing for over 16 years, and being a former research analyst, I’ll say this: Mr. Market can be irrational. His prices can swing wildly, sometimes offering a massive discount on a stock. And I realized some of the best opportunities I’ve ever found were unpopular, unloved and at some point, will start to go on an uptrend.

Good research will triumph over bad emotions. I might be wrong at times. But having a good investing checklist keeps me honest.

Willie Keng, CFA

Founder, dividendtitan.com

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