1. Nasty Surprise
I bought some Company J stocks at end of 2016 at approximately RM1.03 per share. The group has a huge overseas construction contract in full swing. It is very likely that profit will be strong in 2017.
Since the beginning of this year, Company J's share price has been going North. By mid February, it has reached approximately RM1.40.
At around the same time, Mr. You Know Who He Is announced that he has become a major shareholder by acquiring more than 5% stake. The market went crazy and many investors jumped in to ride the bandwagon.
As we drew closer to end of February, I waited nervously for Company J's result. I expected result to be good, and share price could continue to move upwards.
To everybody's surprise, Company J announced a huge loss. The company explained that profitability was depressed by deferment of revenue recognition of certain works completed. There were also some kitchen sinking.
I hold the belief that the proof of the pudding is in the eating. Namely, I don't believe in PLCs' sweet and flowery words, I judge them by their ability to deliver. If your result is bad, I don't like it, irregardless of what you said.
My initial reaction was to dispose of my entire shareholding the next day. After all, my cost was low and I should be able to escape relatively unscathed.
However, after a good night sleep, with a fresh mind, I began to doubt my original decision. The whole episode sounded very familiar. Few months back, a similar thing has happened to Company G.
2. Company G
Company G had been doing well in 2016, and everybody was anticipating strong performance going forward.
Few weeks before announcement of result, Mr. You Know Who He Is announced that he has acquired a majority stake in Company G (more than 5%). To everybody's surprise, Company G released a set of horrible result. Many investors, including me, dumped their shares in a panic. Company G subsequently became an outcast, everybody was pessimistic about it.
Few weeks after result, Company G listed its free Warrants. Nobody bothered to buy. The warrants together with mother shares, traded at depressed level. But in the subsequent quarter, Company G announced a sharp reversal of fortune, with earning back to all time high. The stock shot up, dragging the warrants up with it.
Whoever bought the warrants earlier on laughed all the way to the bank.
3. Conspiracy Theory
Whatever happened to Company G, there was not sufficient ground for me to start suspecting. It could be just a coincidence. There is a very fine line between intellect and paranoia. I can't simply jump into conclusion every time things don't go my way.
However, if similar thing happened the second time, my alarm bells started ringing. Maybe I shouldn't be selling after all ?
On that fateful morning after Company J announced its lousy result, with one hand holding a coffee mug and another hand my mouse, I went against the crowd and started buying aggressively while others rushed for the exit. At the end of 5 minutes frentic buying, I tripled my shareholding at average cost of RM1.04.
My decision later turned out to be correct. Company J share price went all the way back to RM1.25 at the time of this article.
4. Concluding Remarks
I don't write this article to boast about my contrarian move. I wrote it to discuss my perception of how certain events had transpired. I don't expect everybody to subscribe to my view. But I do wish that this article can sow a seed on my readers' mind such that in the future if similar thing happens again, they will be aware of the possibility that it might not be as straight forward as it looked. Hopefully, this will help them in their decision making.
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