Ze Art Of Selling

The other day when I blogged on this stock called Eksons, I remembered the following part.

sooo.... moving forward.... if u invest in such a stock.... these type of stocks needs a catalyst mah..... for folks to chase or whallop or hantem the stock (err... look back in the charts hor... no need any rocket scientist to say mah... so far... no samseng have been playing the stock lah... hor... so if they dun play... u think the stock got legs ka? kaki-kia? ho ho ho )....

The catalyst.

Now this catalyst works both ways. Stocks do not simply move on their own (kaki-kia). Something must exist to trigger the movement. And this trigger can cause a stock to move UP but let's not forget it can also cause the stock to tumble! It works both ways.

Saw this interesting article posted on Capital Ideas: Negative Catalyst

Trigger Event 1: Fall in Price

As you pile up the danger signs, you will be building a case for a short sale. No doubt, the more danger signs the better. But as we learned at the beginning of the chapter, this does not mean the stock will fall. Rather, it usually takes a trigger event to knock the stock down...

With the danger signs in place, trigger event 1 is a 25 percent fall in the stock price when there is no news to account for it. While trigger events are certainly not foolproof, a drop of 25 percent or more is cause for closer scrutiny. As has been the case with many shorts, a stock that loses momentum can quickly unwind. The 25 percent drop can easily turn into a 50 percent drop or more when bad news is released. And, according to the cockroach theory, things could continue to get worse, as the company releases more and more bad news.

(LOL!! The cockroach theory?? LOL!! Has he been reading my old stuff?? .. anyway, there is one saying... 'stocks do not fall without a reason... !!')

• Trigger Event 2: Resignations
  
  If the CEO or CFO resigns, then take notice. This is especially the case if the company is doing well. Why would a top executive leave if the future still looked bright for the company?....
  
  An auditor's resignation from a company's account is also a trigger event. Was the company putting pressure on the auditor to do some­thing too aggressive?

skip trigger 3...

Trigger Event 4: Unexpected Loss/Restatement of Earnings

If a company reports earnings that fall below Wall Street expectations, it is usually not a fluke. However, of course, a company will try to inter­pret the results as being "one time" and that the company will con­tinue to grow strongly for the rest of the year.

Despite such efforts, earnings disappointments tend not to be one­time events. In fact, one earnings disappointment usually leads to other earnings disappointments. According to Tom Chanos, who man­ages an independent short sale research firm, a company has much leeway in managing its earnings. If a company expects to fall short, it can typically use its reserve to find earnings. If, however, there is not enough in the reserves, then the company will have to report a disap­pointment. This can be a telltale sign that the company is headed for more trouble in the next few quarters. In Chapter 8, we will take a fur­ther look at how companies can use reserves to manage earnings.

A more prominent trigger occurs when a company announces that it will restate earnings. In most cases, a company's stock will fall on the news (if not plunge).

I have to say one thing... based on observations... yeah, my observation lah.. and if I am wrong... why don't you tell me why...

anyway, when it happens, remember it is USUALLY NO FLUKE. No sane company bossie wants to proudly declare a loss, would they? And yes, they can and might do so for a rather crooked reason BUT if that is the case, why would you want to RISK your money with them?

And since it is USUALLY NO FLUKE, more often than not, there is something wrong deep down inside.

And the bottom line... it usually take a LONG time before the company RECOVERS.

Now comes a commonsense thingy, since it WILL take a long time, meaning while one wait for the economics of the business to recover, what do you think will happen to the stock price?

How? Worth thinking about?

What say you?

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