When you are on the road, be prepared accident can happen, despite best intention. Having said that, the accident has happened and we should learn from this accident to avoid such cases in the future
Let's review the story of Gokaldas exports
The stock took off in a grand style in June post quarterly earnings and everybody thought we are looking at great turnaround story -
The Chart action did two things: A. It created momentum in the stock and B. There was a breakout on the charts which made the chart very compelling and attractive. The story looked real as it was a breakout above multi-year resistance.
Earnings Turnaround + Multi-Year Breakout = Mouth watering Opportunity?
It was a trap
Charts only tell you what the stock is doing. It does not tell you the intention behind it
Sometimes you start believing the story so much that you close your eyes to the ugly things which also happens right in front of you. The ugly things: Look at what influential insiders did post the rally
First the promoters: a major PE investor sold major chunk...why will they sell a turnaround story
Stocks To Watch: Gokaldas Exports: Promoters Sell 10% Stake In Co: Gokaldas Exp 126.00 -1.64%
— CNBC-TV18 (@CNBCTV18Live) June 13, 2016
This was the major warning sign - :
Blackstone sells 10% stake in Gokaldas Exports at huge loss 9 years holding & sold @60% loss 275-126,,
— Nikstrade (@Nikstrade) June 13, 2016
Who picked up the stake?
ICICI Bank buys 34.50 lakh shares of Gokaldas Exports: Like this story, share it with millions of investors o... https://t.co/TqBGUomUE7
— Aneez (@Aneez) June 12, 2016
What ICICI Bank did:
ICICI BANK: Cuts Stake In Gokaldas Exports By 2.22% Via Open Market
— BTVI Live (@BTVI) June 23, 2016
Then came the real shocker: earnings and panic fall in the stock. In no time, stock was down from 110 to 77 now with very limited exit option
Gokaldas Exports Q1
Cons Net Loss At `11.6 Cr Vs Loss Of `10.8 Cr
Total Income down 15.4%
— Varinder Bansal (@varinder_bansal) August 9, 2016
There is a big lesson one can take from this stock. Breakout does pave the path for strong returns but once in a while such disasters too happen and one should keep an eye on what leading insiders are doing post breakout. Are they using the opportunity to dump, then that means...it is a big trap. Charts only tell you what the stock is doing. It does not tell you the intention behind it and hence keeping an eye on newsflow and actions of some can help avoid such disasters.
Once you have a bad experience with the stock - the best way to deal with it...Sell and Move On and not get consumed by the sadness, anger of it. Also, one bad experience should not shake your faith in the process or methodology you follow. No matter how hard you try....there is no 100% safe thing in market or life.
Let me know your comments....
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers