Things have going along just fine for a long time (years) with the MultiStage Trading System, and the results have been as expected. And then… there was last week.
Each day I generate a report on my computer using a custom algorithm that finds high probability trades. It works well. Last week the system found Puda Coal (NYSE:PUDA), and like I do every day, I entered a trade with the algorithm-generated limit order. On April 6th it triggered and I owned PUDA.
On April 8 a story was published that the CEO had embezzled a lot of money and that it was hidden by overstating company assets. Bottom line, the company is not worth nearly what it was marketed at.
There are a number of investigations focusing on whether the Company issued materially false financial statements and information to investors. Investigations center around a report which surfaced on April 8, 2011 on an investor website alleging that certain Company transfers involving the Company’s Chairman, Ming Zhao, were hidden from its U.S. investors and were not reported in the Company’s filings with the Securities and Exchange Commission. In response to the report, on April 11, 2011, Puda Coal announced that the Company’s Audit Committee had launched a full investigation into the allegations raised in the recent report and that “evidence supports the allegation that there were transfers by Mr. Zhao in subsidiary ownership that were inconsistent with disclosure made by the Company in its public securities filings. The Company also announced that Mr. Zhao agreed to a voluntary leave of absence as Chairman of the Board until the investigation is complete.
Trading of Puda Coal stock has been halted following the revelations made in the report. Where does that leave me? In short, I have a fair amount of money tied up in this stock. It’s not tradable, so I can’t liquidate, and its hard to know the value. I suppose I have to brace myself for a substantial loss, and perhaps it will be all of my position.
I thought long and hard about how this could have been avoided. Could I filter out International or Chinese stocks? I could, but I’ve had MANY winners in this category. In fact, any filter I could apply (industry, market cap, liquidity, etc.) does more harm than good. This is just one of those tough ugly losses that I will have to endure and recover from.
Good Trading…
I just started an account through co-vestor so it's down almost 8% so my question regards to Puda is are you going to sell as soon as you can?
ReplyDeleteBelow I pasted comments fron Zacks which just upgraded the stock to outperform:
Puda Coal (AMEX:PUDA) has a potential upside of 191.7% based on a current price of $6 and an average consensus analyst price target of $17.5.
Rather than guaranteeing a big loss by dumping it at first chance I would rather wait for a recovery in the price before selling.
Ken
Hi Ken,
ReplyDeleteUnfortunately I am not able to comment on specific trades to individuals. You certainly can contact Covestor and they may comment, and I may also make some more general comments on the blog.
Bill
We've been watching this one too; it's been a new experience for us. Sounds like for you too maybe. Took us a couple days earlier this week of refreshing stock quotes all day and wondering why it was acting like it was still the weekend to find the news that they had frozen trading. I wonder how long trading stays frozen in a situation like this. Hope it turns out better in the end.
ReplyDelete"Could I filter out International or Chinese stocks? I could, but I’ve had MANY winners in this category. In fact, any filter I could apply (industry, market cap, liquidity, etc.) does more harm than good."
ReplyDeleteI've been struggling with the same question.. should I exclude Chinese small caps, or at least Chinese RTOs? If I base my decisions solely on looking back - backtests, then excluding any larger group of stocks is a bad idea, as they all have a positive expectancy in my strategies. But how does one account for the rather recent phenomena (which does not have much visibility in long term backtests) of orchestrated "hit pieces" or negative blog posts including fraud accusations made by short sellers such as Citron Research, Muddy Waters, GeoInvesting, and the like, followed by intense selling of 10-40% in a couple of days, and possibly trading halts (PUDA, CCME, RINO)? If there was a group of stocks that recently would seem to have more risks than rewards it would have to be Chinese small caps.. According to the author of this article http://www.thestreet.com/story/11069805/2/chinese-small-cap-stocks-start-unraveling.html
"213 companies domiciled in China trade on the NYSE, NYSE Amex, and Nasdaq. Of these 213 companies, 133 have a market cap of $250 million or below.
These 133 companies have an average YTD loss of 20%, VASTLY underperforming the market as a whole this year."