Good morning! Apologies for my duvet day on Friday, which was due to a group of us propping up the bar until about 3am the night before, at the Mello Workshops event in Peterborough. At dinner, I was delighted to be seated next to Gervais Williams of Miton (LON:MGR) so we discussed a number of small caps. I was moaning about the profit warning from Shoe Zone (LON:SHOE) and Gervais commiserated, saying that his firm holds 15% of the company, so he shares my pain, but on a bigger scale!

(at the time of writing, I hold a long position in Shoe Zone)

I see that shrewd trader Robbie Burns (aka. Naked Trader) also got caught on Shoe Zone, and he's posted some scathing comments about the company in his online trading diary. A consensus is emerging that the company's weather-related excuse for the profit miss is unsatisfactory, and directly contradicts what they said on 14 Jan 2015, so a proper explanation is needed I think. He reckons the shares are starting to look interesting as a bargain buy, and I'm leaning towards that view myself now. Risk/reward is starting to look interesting again with them having fallen all the way back down to 170p. It's looking good value on the lower, revised broker forecasts now. I'd be happier paying 150p for a top-up though, so let's hope it drops a bit more to give me a more favourable buying opportunity.

Profit warnings really are the bane of our lives, in the small caps space. You can't avoid them, so it's a matter of just dealing with them logically. It amazes me how overly emotional some investors become when a stock warns on profit, some of the things you read on Twitter for example are astonishing. It's part of life in this space, get used to it!

When a stock does warn on profit, we have to assess how significant it is, and the only thing that matters is whether the new, lower share price, now represents good value (in which case one should buy more), or whether the company is in a downward spiral and there is more bad news to come (in which case one should sell immediately). The market doesn't know or care what price we paid for our shares, and I agree with the gentleman…

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