What happens to share price when CFO resigns?

Midas' CFO has resigned abruptly on Thursday last week. He quoted "personal reasons". As such, Lim and Tan has stopped coverage of the company, citing "resignations of CFOs have traditionally not bode well for its share."

I did some research on companies whose CFOs have resigned. Idox Plc (IDOX), a U.K. supplier of software services to government agencies, fell 8.1%, after its chief financial officer resigned just 2 weeks ago.

Likewise, shares of MTN Group took a beating last month after its CFO resigned amidst unspecified allegations.

Closer to home, when Olam's CFO resigned in June last year, its shares fell 5.4% before recovering later. Now, however, it is trading lower than during last June.

However, Microsoft's CFO resignation in April did not impact its share price. This was after it reported results that beat expectations.

OCBC maintained its "Buy" rating on Midas. This was due to 1) reassurance from management and 2) expected contract wins in HSR from China later this year. The first reason, I am skeptical, because that is standard, politically correct reply. The second reason, I am more accepting.

Nonetheless, I want to be very careful. As I am not fully assured that it is not hiding things in the closet, I am bailing out from this stock as of immediate effect. Thanks, Midas, it has been a rewarding ride.

 

A good analyst

Analysts play an important role in our choice of stocks, but it is quite common when analysts recommend "buy" (think Vard), and it should instead be "sell". Quite dangerous to follow them all the time right? So what makes a great analyst?

He must have 

• Strong convictions about his recommendations. And guts to add to his positions when markets are going against him (something I still find hard to accomplish, as evidenced recently in my investment in China Railway. I bailed way before it reached my target price!)
• Be flexible enough to apply different valuation methods to value different types of securities
• Not afraid to deviate from the consensus

(adapted from The Edge, Aug 19)

I think, to be a great investor is very much like a great analyst. Need to have strong convictions on the stocks purchase. Need to buy, when everyone is selling, and to sell, when everyone is buying.

Not all stocks will go up

Admittedly, the bull run has only a few more months to run... as can be evidenced now by the fast-tiring Dow and local STI... actually, I personally doubt it is going to go up any significantly higher, and a major correction may just be around the corner. Which is why I am not going to add to my positions, but will be using market upticks in the next few months to unload.

My positions are:

Midas...it is expecting more order...so this one is worth keeping for now..I may even add more positions if stock market tanks...but eventually aim to sell out by Jan 2014.

Sunac... I have sold half since its run-up last week... and will be using its upcoming result announcement (expected to be good) to sell the rest

NOL and Wilmar... These two are in a quandary.. no movement at all... so I am caught...  I am prepared to hang on for the longer term..

The worst is behind us

It is only on hindsight that we know what the low is, and for the SSE, HSI and STI, the low point was made on 25 June 2013. The DJIA, because of time zone difference, made its low on 24 June 2013. I am pretty sure the lows will stay for now. The more tricky question is, not all stocks will rise with the index.

Chart for Midas:

It is showing signs of life after the recent correction, having just crossed the 200-d MA gracefully. Think it is preparing for news of contract wins.


Chart for SUNAC

It also just crossed above 200-D MA, representing a more bullish scenario. Management is anticipating excellent results.


These two represent a bullish case for recovering Chinese equities. I think the Chinese market has bottomed, despite ongoing concerns and fear of the Chinese economy tumbling.

Are we in the last stage of the bull run?

Having attended Invest Fair 2013, it was dismal to hear a few speakers there predicting that this 5-year bull run will be coming to an end soon. However, a bull run averages around 5years, and this bull run started in March 2009, so I am more than prepared to face up to this fact.

So what are the signs of this market top? According to the diagram above (used by Kelvin Han, one of the speakers), we are now approaching the late expansion stage. Once oil price starts to hit new high (now at 106, predicted figure is 120), we should prepare for a crash  of the Dow Jones to at least 13440. According to him, we have six more months left, and we should be concentrating on buying energy stocks during this period. However, he is only confident of US stocks, and not Singapore stocks.

After that, it would be a 1 - 1.5 year crash till mid-2015. This is when I will need to short the markets.

Personally, I tend to agree since this bull market is getting old and tired, and I think it needs to rest before charging again. So, this is my plan:

Now - end 2013: Pare down my holdings as much as possible (currently I am vested in Midas, Sunac, NOL and Wilmar). In fact, I do not want to wait till Dec to get out of my positions!

2014: Short the Dow Jones Index

Mid 2015: Buy stocks again (my fav candidate is Las Vegas Sands, I miss out on this during last crisis).

2017: Sell! as traditionally, 1987, 1997, 2007 have seen market tops.