It can certainly pay when a prominent individual attaches himself to a
firm - just ask Geo Energy Resources and Etika International Holdings.
The shares of both firms went up
in recent weeks - one in spectacular fashion - after it was announced that
prominent businessmen were getting involved.
And it is not just because there
is little else in the market to focus on amid the quiet holiday season.
Experts point out that investors
have always followed the lead of these "market gurus", who they
believe will help them pick good stocks.
Geo Energy's jolt came on
December 3 when it announced that renowned "commodity king" Jim
Rogers was joining it as a non-executive director.
Shares in the coal mining firm
surged 27 per cent to 44.5 cents the day after and continued to climb, reaching
a record 50 cents last Tuesday before slipping down to 49 cents last Friday.
Geo Energy stock is now 51 per
cent above its October initial offer price of 32.5 cents, making it one of the
top performers among market newcomers this year.
Etika found some of the same
magic when it announced on December 6 that "Popiah King" Sam Goi, the
successful founder of popiah skin firm Tee Yih Jia Food Manufacturing, planned
to invest S$14.99 million by taking up new shares.
Shares of Etika, a producer of
condensed milk, advanced 9.8 per cent to 28 cents the following day, although
they have since slipped back to 25 cents.
NRA Capital executive chairman
Kevin Scully noted that the market has always rewarded firms that manage to
attract big names as directors or shareholders.
"There are a number of
market gurus who investors follow in the belief they have done their due
diligence and homework on the firm, so they believe that if they too can go in
at a similar entry price as those prominent individuals, their risk is limited,"
he said.
Investors also tend to believe
that such prominent businessmen can help boost a company's fortunes from
within, said Sias Research chief executive Roger Tan.
"These gentlemen may be able
to bring opportunities and connection to the company, which may enhance
profitability and growth."
These prominent "gurus"
include Koh Boon Hwee and Oei Hong Leong, whose moves are often very quickly
copied by market participants, for better or worse, said DMG & Partners
Research head Terence Wong.
"Such astute investors are
deemed to be in the know and have insider knowledge, but this is not always the
case."
Investors should still go back to
basics when deciding whether to invest in a company, he said.
"If you have been wanting to
invest in the stock, and these prominent individuals validate the company's
story, that's fine.
"But if you would not have
invested in it otherwise, it is probably best not to jump in just because
someone prominent has done so. It may not be a good long-term bet."
After all, even successful
investors can sometimes make bad calls.
The shares of education provider
Informatics are languishing at 8.6 cents, compared with 18.5 cents when news of
Oei's interest was revealed in June 2004.
Scully said that when deciding
whether or not to copy a move made by a prominent investor, it would be wise to
have an exit strategy.
"If something goes wrong,
these big investors have direct access to the company's management, so they can
exit as fast as they came in, but you won't know they exited until they
announce it to the market," he said. "So ask yourself - how will you
know when to exit? Will you be able to exit whenever they exit?"
Yasmine Yahya
Business & Investment Opportunities
Saigon Business Corporation Pte Ltd (SBC) is incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Strategy, Investment and Management, focusing Health care and Life Science with expertise in ASEAN 's area. We are currently changing the platform of www.yourvietnamexpert.com, if any request, please, contact directly Dr Christian SIODMAK, business strategist, owner and CEO of SBC at christian.siodmak@gmail.com. Many thanks.
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