My Investing Journey: Allied Technologies Part 2 0 comments

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At 64.5 cents I sold out of Allied. I can remember that afternoon at the office in late October 2003, when I called my broker to sell my entire line after seeing the stock continue to rise during my lunchtime check on the market. I had told him to execute the sell at 63.5 cents, and in a matter of say, 30 seconds, it had jumped to 64.5! That's the price at which my sell order was executed. Not that I was complaining. It just showed how strong the buying momentum was.

I believe the relief that I experienced upon the sale can be understood by those who have sold out of big winners. It is a release of pent-up tension and the constant itch to pull the trigger as the price soars skyward, especially if it is an inexplicable rise. The tension builds up as one's emotions transit from gladness at seeing the initial rise, to vindication as the share price approaches what one considers fair value, to disbelief as it continues surging upward on increasing volume, and then a fear of regret constantly eating away at his increasingly frequent profit-tasking impulses.

I sold because I could no longer tahan the price valuations. At 63 cents, the stock was trading at 18X PE, and it was a recent IPO with limited post-listing track record! Even I knew it was too good to be true. Niggling at the back of my mind was how the seller of the LCD plant (see Part 1) would be willing to let go of such an incredible money-making asset to Allied Technologies if the claims on topline and bottomline contribution as claimed in the newspapers were true. I reasoned that it was time to recycle the capital and switch to other more fundamentally deserving stocks (not that there were many in the wild bull market in late 2003 which was soon to correct in early 2004).

The rest is history. The stock went up to above 70, the market somehow realised it had been overly euphoric and within a matter of weeks the price corrected downwards to the mid-50s, no doubt dampened by a subsequent company announcement that some orders had been delayed. Operations at the LCD plant started, but big losses were incurred that actually dragged down the group. The LCD assembly operations are still loss-making as of the last financial year. Allied Technologies is an illiquid stock today, trading at 11-12 cents.

They say that one learns most from his mistakes, but I think I also learnt a lot from this Allied Technologies experience, even though I had made an obscene amount of money (a two-bagger for sitting out 3 months .... a 400% gain if annualised) for what had essentially been a mistake, if one considers Allied's subsequent poor set of results. The episode taught me that market enthusiasm can often bid up prices to wild levels, and big money can be made in resisting the impulse to sell at whatever "rational" price targets one had set(If I had sold at "fair value", I would probably have foregone 20-30 cents of price appreciation). In other words, follow the flow. Fundamentals are but one part of the stock market, and there's no point being too honest or straight about it. Secondly, the willingness of the market to believe unproved "concepts" (the LCD plant with no track record) left a deep impression on me; that was the power of a bull market. That's why I believe among the three major forces that shape a stock's price trend --- market, sector and company --- the first one is the most important; hence my qualitative view that relative importance is weighted 40:30:30 respectively (however, I still believe market timing is very difficult). Lastly, it was a valuable experience for me in balancing the two conflicting adages "let your profits run" and "take profits, do not be greedy". As mentioned above, one must take into account market psychology, but at the same time he must avoid falling in love with his stock, or even worse, resist selling because he doesn't want to miss the excitement or any further possible upside. When the stock goes way above the fundamentals, there has to be a point when one says "Enough is enough!". Unfortunately, the lesson was not ingrained deeply in me, and I have had a few subsequent experiences when I followed the stock all the way up and then (nearly) all the way down. This time, though, I do believe my timing in selling Allied was near-perfect. Good money made on a dubious stock pick. Serendipity indeed.