Thursday, December 27, 2012

Poseidon Adventure

The Poseidon Adventure was a 1972 movie about an old luxury liner ship on her final voyage that was overturned by a tsunami.  The bulk of the film was about the plights of the passengers and crew members trapped in the upside-down ship.

My Poseidon Adventure, thankfully didn’t involve any tsunamis or people trapped in upside-down ships, but it has most certainly been an “adventure”.

I read about a company called Poseidon Concepts (PSN) in early November 2012.  It was highly recommended by a well-respected analyst.  It is a Calgary-based company which provides fluid-handling services to the oil and gas industry.

I looked at the stock and did some fundamental analysis on it.  It all looked really great, based on the information available to me at the time.  The technical indicators at the time were saying it was a bad time to buy into the stock, but I wasn’t using much in the way of technical analysis then.

On November 9th, I opened a position of 100 shares for $13.37/ea (approximately $1000).   Here lies mistake number 1.  I wish I’d known more about technical analysis at the time and stayed out of this stock, which is what the technical indicators were saying to do.

Mistake number 2 was in not paying attention to when the company would be releasing quarterly results.  Big moves often come with the release of financial results (and other news)… in between times people are buying stock based on old information and speculations about how the company may be doing.  When the financial results are published, then you have your proof… good or bad.

A few short days later, on November 14th, the company released their Third Quarter Results (after markets closed for the day) and on November 15th the price gapped down, opening at $5.79.  Less than half of what it had closed at on the 14th ($13.22).  I had already realized that Poseidon was about to have some new competition which would make things tougher for them, a rumor about a tank leak in NYC, and the third quarter results weren’t rosy, but I didn’t think they weren’t earth-shatteringly horrible either.  But... well... what do I know about understanding dry financial reports... not much.

I looked at and to see if anyone was saying anything useful about what was happening.  On Stock Chase, a few analysts had posted about the company in November… “Past Top Pick” (Nov 1), “Past Top Pick” (Nov 8), “Buy” (Nov 9), “Don’t Buy” (Nov 13) with concerns about competition.  Stock Twits had a little more to offer.  The rumor of the leak had been out before and was denied by management.  The third quarter numbers “are horrific”.  Price drop “seems like a bit of an over reaction”.    “Talk about overcorrection.  Even if they slashed their dividend by ½ (they won’t), this is still a tremendous deal”. 

I wasn’t sure what to do as I watched my $13.00 stock drop down to less than $5.00 in ONE DAY, but I did feel panicked about it.  I had been improving my strategy for stock selection and things were going much better than they had been and this development was going to set back a whole pile of progress!

Then, the price started moving back up.  It inched up and up… and I thought, ok, here’s the end of the overcorrection.  People are coming back in.  This is an opportunity for me to buy more of the stock, bring my average price down, and recoup my losses as the price continues to move back up.

This was mistake number 3.  I got caught up in my own panic about the situation and I didn’t think about what was likely to happen over the next while as people dumped out of the stock… the repercussions were not over and were not going to be over for a while.  It was really naïve of me to think that the stock could gap down that much and then just merrily climb its way back up to where the analyst was now saying it would end up… at around $8.00.  Other people, with panics of their own, were dealing with the situation as well.

Using my iPhone, I tried to place an order for another hundred stocks at about $6.00/each.  The app on my iPhone chose that very day to malfunction, though, and here comes mistake number 4.  As the app refused to process my order, the price of the stock continued to inch up and inch up, and I got caught up in a new panic all my own as the “opportunity” to buy in at $6.00 danced away from me due to a technology malfunction.

I tried, repeatedly, to get the iPhone app to process my order, and was finally successful when the stock hit $6.16.  I had had to press the button several times on the iPhone to get it to “take”.  Thankfully, I only had about $1500 cash in my trading account at the time because… as would happen during a mistake made in panic… the app actually DID process my order every single time I pressed the button.

I got a confirmation that I increased my position by 100 at $6.16.  Then, I got another confirmation that I increased my position by 100 at $6.16.  Then, thankfully, my account ran out of cash and I got “order refused” messages for the remaining panic orders.

I was now holding 300 shares of Poseidon with an average price of $8.62.

Poseidon hit a high of $6.50 on November 15th, but then drifted down… and down.  On November 28th, it sunk to a new low of 4.06 and from there continued to drift down… and down.  On November 29th, Poseidon announced that they intended to vigorously defend the class action lawsuit.  Hmmmmm… what was that about?  I looked it up and there’s a class action lawsuit brought against them by investors for allegedly hiding their bad financial situation.  Anyone who held the stock prior to November 14th was eligible for damages if the lawsuit against them was successful.

The stock continued its slow drift down and closed at $3.31 on December 24th.  I held onto the stock.  Perhaps I would get some money from the lawsuit, or perhaps the stock would finally bottom out and eventually climb back up.  Would this turn out to be mistake #5?  It was quite possible, but considering I spent over $2500 on something that was not even worth $1000 at this point, I figured I would wait it out and hope for a recovery.

Today, December 27th, the stock gapped down again on open ($1.93) and has hit a low, so far, of $1.27.  You see, they released some news today that they’ve suspended future dividends and have formed a special committee to review and address various A/R issues.  Three of their board members have resigned.

I am still holding this stock.  Will that turn out to be mistake #6? Time will tell.  But considering I spent $2586 on something that is now worth $429, I have very little to gain by exiting at this point.

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