Lesson from China Minzhong

Around two months ago, I researched on this S-chip - China Minzhong. The financials looked sound, the price was right and and I believed that there is a decent chance that a major shareholder of China Minzhong, Indofood, will offer to buy over the company within the year. However, I didn't want to invest long term in an S-chip after all the S-chip accounting irregularities that happened in the past several years. “Nevermind, I'll just buy and hold till year end. If the takeover does not happen by then, I'll sell my shares, hopefully at a profit or worse comes to worse, bear a small loss. Cannot be so suay to hold China Minzhong for a few months and something drastic happen to the company during this time, right?”, I told myself. And so I happily went aheard with the purchase.

Now some of you may find the name China Minzhong familiar or may even have followed the saga that unfolded late last month. The company was attacked by a US short selling company called Glaucus Research. Glaucus issued a report alleging accounting irregularities. Straight after the report, China Minzhong's share price plunged almost 50% within 3 hours after the stock market opened for trading. The stock was suspended shortly after. Little did I expect that so soon after my purchase, China Minzhong is accused of accounting irregularies and my shares' value is halved in the blink of an eye.

Fortunately, the suspension was lifted a week after, with Indofood making a conditional offer on China Minzhong shares. I sold the shares shortly after the suspension was lifted. Even though the trade yielded a profit, it did not erase the lesson learnt. Bad news can happen anytime. If I am not willing to hold a share long term, it's best to not invest in it.