Monday, October 28, 2013

Stocks Accused of Fraud

One of the first lessons of stock trading that I had engrained in my head was to never buy a stock accused of fraud.  No matter where the source is coming from, it puts a huge dark cloud over the stock.  Usually the accusers are right.  In almost all cases, investors/journalists are loathe to accuse any stock of fraud.  Short sellers are some of the most analytical and rigorous investors out there, and do some of the best work in finding fraud among smaller speculative companies in the OTCBB and Pink sheets, many of them shells used to profit from selling stock, not running a business.

NQ was accused of fraud by Muddy Waters and they are probably fraudulent.  I read the Muddy Waters accusations and wasn't too surprised that NQ wasn't able to specifically deny the most fundamental accusations of the company.  The conference call was quite vague, it sounded like a script rather than a factual response to the claims made against them.  Anyway, I see no reason why any fund would want to buy these Chinese companies when you can't trust the financials.  China is one of the most corrupt countries in the world, their stock market is a glorified casino, and embezzlement is rampant.  How can a country like China, that has grown as much as it has, have a stock market that has gone basically nowhere for the past 15 years?  If hedge funds and managed futures accounts are ways for shrewd Americans to suck money from investors, public companies are a similar avenue for insiders to cash in while providing nothing of use for the investors.

2 comments:

John Connor said...

Just so I follow do you still thinks momo stocks like Vips, Sina, Baidu run into year end or has NQ brought back memories of 2011/12 where everyone worries about fraud, VIE's etc

Market Owl said...

I am still bullish intermediate term on the momo stocks, even though they should stay weak till earnings are done and you get a pullback in the market. We still haven't gotten the market pullback so I don't think you can be long the momo stocks here. I am not worried about NQ's effect on momo stocks at all. NQ wasn't really an institutional stock anyway, it was a small cap stock that was being pumped hard by the Street.