Codan drops 37%

One of Australia's best performing small caps has sold off in dramatic fashion.

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Codan (ASX: CDA) has made a company announcement that has shred over 37% from the company's value before the end of trade.

The company has revised down its most recent estimated profit targets to the lower end of its expectations given earlier this year. The company has said that unstable market conditions in Africa where it sells a large portion of its metal detection technology, was expected to continue its balance for FY13 but the second half profit will not be as high as expected.

The board now expects the full year NPAT to be in the region of $45 million and although it represents a new record and almost double last years' results, it will not be what the company hoped to achieve.

The African markets are currently being impacted by large amounts of civil unrest and are due to hold government elections in FY14.

Where now?

Shareholders, like myself, will be shattered by the news that the company has dropped 37% in a matter of minutes, and as one of my biggest shareholdings, it is disturbing to say the least. However in times like this, investors need to remember a few valuable points about the stock and investing in general.

It's dropped already, there's nothing we can do now and if we sell out, we confirm our losing status. Codan is an excellent company run by many well experienced leaders and has unique products that are sold throughout the world — not just Africa.

Foolish takeaway

When companies drop, it is the best time to buy in and reduce percentage deficit but perhaps waiting until more information arises will enable us to make a better informed decision about the short, medium and long term. I believe this company will be much higher 10 or even 5 years from now. Warren Buffett has two simple rules which direct us in times like this:

Rule #1 – Don't lose money
Rule #2 – Don't forget rule #1

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Motley Fool contributor Owen Raszkiewicz owns shares in Codan.  

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