Back in July there was a big pump and dump scheme in Technical Communications Corporation (NASDAQ:TCCO). On no new fundamental information the share price jumped from about 2,90 USD to 5,10 USD in one day of trading. After a few days the share price went south and we were back at the starting point.
Back then my rule was than under no circumstances should I revaluate my net-net holdings in relation to the checklist until thirteen months after the initial purchase date. So basically, I missed out on a +100% return. After a few weeks of thinking I decided to put in three safety vales to the standard thirteen-month rule. See my old post about the updated checklist and portfolio rules (in Swedish).
- A follow-up is done on each net-net holding after thirteen months, or directly:
- if there is a buyout/tender-offer for the company’s shares.
- if the company is going to be delisted.
- if there is a pump and dump scheme (i.e. the share price has risen drastically on no new fundamental information).
Follow-up on TCCO (a mistake)
Earlier today I got a notification on my phone saying TCCO was up over 40 % in today’s trading. Here we go again a thought to myself. After a check on Google Finance I saw the same pattern as I had observed the last time. A huge spike in shares traded and no link to any new fundamental information. Together with a quick search on Twitter, were I found a bunch of traders bragging about their morning return in TCCO, I decided to apply the follow-up safety value of “pump and dump scheme”. Although sitting on the train, I managed with my phone and the last Q-statement to figure out that TCCO was now selling for P/NCAV = 1,15x. With that conclusion the company no longer had in accordance to my net-net checklist an “adequate margin of safety”. I therefor decided to sell my position at 3,20 USD. In relation to my entry price that translated into a total return of 28 %.
So here this post should end, right? Unfortunately, no. I made a mistake. As it turned out I did a sloppy job of researching the “no new fundamental information” part. When I came home I found a new link via Google Finance that took me to this following statement (published yesterday): https://www.sec.gov/Archives/edgar/data/96699/000114420416128504/v450710_8k.htm Had I only checked all the company’s fillings in Edgar I would have come to a different conclusion regarding the relevance of the safety vale. That in turn would have meant that I had not sold the TCCO position.
This is a perfect example where of a good outcome is not the result of a good decision. I guess we all make mistakes. Luckily this was not one that resulted in a permanent loss of capital for me. But take my word, I will learn from this!
Disclosure: The author doesn’t own any shares of NASDAQ:TCCO when this is published.