Monday, July 6, 2009

GT Blog July 05, 2009

A few comments on the dreaded torpedo stock

Last week I was a guest on BNN’s Market Call and I believe I gave a hurried and insensitive answer to a question regarding the collapse of OPTI Canada Inc. (TSX-OPC)

There are a lot of callers and so there is pressure to hurry but that is no excuse and I regret glossing over a significant event that inflicted harm on many investors - OPTI is a torpedo stock and so here is how I learned who to deal with a torpedo

There is no protection from the torpedo – it ambushes the fundamental and technical guys – to include the pros and the private investors. That means that stops do not work and there are no warnings in the balance sheet.

I get stuck with a torpedo in August 2004 when CP Ships released its second quarter 2004 financial results restating previously reported financial results – apparently a new SAP financial accounting system in January when implemented revealed some deficiencies in former systems - CP tanked – so - first of all do nothing – no buying or selling because the sudden drop or torpedo is usually the only drop BUT - the stock needs time to “heal” so just wait it out for at least 26 weeks – in the case of CP Ships a year later the stock was taken out by German conglomerate TUI AG at $27

1 comment:

canuck2004 said...

Best way to guard against a torpedo stock is to keep positions small.

A stop won't work as the "gap" down will automatically trigger the stop, which then becomes a market order waiting in line for a fill... this means one cannot control the stop sell price.

A tough place to be. Been there many times.