Ever heard of the saying: "Buy the rumour, sell the news?". Here is an example: On 20 April, 2006 Taliwrk made a press release stating that it had sold 17 million shares to Goldman Sachs and other investors for $1.35 per share, raising $23million and increasing the public shareholding spread. On 21 April, this was published in the Star, driving the price up to as high as $1.90. Since then it dropped to around $1.30/$1.35 which is the price where it was before the announcement.

Why did that happen? Because everybody knows that the market is always awash with buyers when good news gets released. At that point there are enough buyers to absorb enough shares to keep the price steady for long enough for the smart money to get out. And when the sharks are out, the lambs are left holding something at an elevated price with nowhere to go but down. In the press release, the CEO said: "The placement by the Company and the Disposal by its substantial shareholder will raise our public shareholding spread to above 25% and we hope that this will further improve the liquidity of our shares". And he was right, because the "liquidity" created by the news allowed the smart money (which had been accumulating a month before on 20 March) to offload their stock at the right price.

So don't be a lamb! Time your trades so that you don't caught in the crossfire when you go in. Because Taliwrk is a good company which would have caused you to lose money had you been suckered into such shenannigans.

Side topic

And here's something else, in case you were wondering: the fact that Taliwrk disposed of some shares to GS does not necessarily mean that GS are now investors in the company. The press release said that there was an equity derivative transaction involved which allowed the original shareholders to maintain their exposure. That probably means that they just sold the shares to GS and entered into some sort of swap or option agreement in exchange for a fee. That type of transaction takes the positions off the shareholder's books and moves them onto GS's, but it moves GS's exposure back to the shareholders under the derivative element of the deal. Therefore if you net the value of the shares and the derivative together, GS is actually left with an asset on its balance sheet which does not change in value. This is called borrowing another's balance sheet, and is quite common. It can be caused by any number of reasons ranging from regulatory to credit to structuring, but I repeat, it does not mean that the buyer of the share is investing in the company. This piece of information should have been heavily discounted by everyone when it came out (as a rule of thumb I generally discount anything with the word 'derivative' in it).

Conclusion

Please don't take this as a negative report on Taliwrk. It is just an example of how the sharks take advantage of the news to make money. Taliwrk is a good company producing solid earnings and will continue to keep doing so even throughout this downturn, which is why I am buying some shares tomorrow!

Good week all!