Tripp'n on LDK


The market is always right... The numbers don't lie... Every investor has heard it but still people try to play tricks with the market

On 10/3/07 I put over 60% of my portfolio in LDK. The CFO had just been fired and made claims that LDK was misleading investors with the way they were recording inventory on their balance sheet. LDK provides polysilicon to makers of solar panels, their inventory is everything because they are a manufacturer of a raw material. That day the stock plunged from $70 to $50.

Mistake #1: I bought in after hours at $56 because the stock looked to be recovering

I bought into LDK looking for a quick trade. I expected the market to play off the crazy revengeful accountant for a fool and bank off the recovery. China was hot, solar was hot, LDK was hotter. This stock had run from $22 in June 07 to $75 in 4 quick months, it seemed unstoppable.

The next morning, LDK opened at $52, down 7.2% with the first tick of the day. It quickly trekked to $57.57 in what I thought was going to be a very profitable recovery.

Mistake #2: I should have sold when I saw that nice profit, and I almost did, but greed got a hold of me.

Mistake #3: With no stops I decided to hold it out and ride LDK back the $70 range.

The next 2 months were the longest of my life. LDK launched into an investigation regarding its inventory and the previous CFO filed complaints with the FTC. LDK is one of the largest producers of polysilicon, the material needed to make solar panels. There is a massive shortage of this material and solar is the fastest growing renewable energy source. This stock is a no brainer. Right...?

When my portfolio was down 32% on Halloween I debated selling. When I was down $30 a share in late November, I was seconds from selling. But I had made a decision, I was going to wait it out until the investigation was over. At this point even if the allegations were true (and since it was taking so long I figured this to be the case), the stock would recover. It was down to under $25 a share, nears its IPO price, how much farther down could it go!?

Starting 11/15 the news began streaming in. LDK announced that business was strong and gave an update on the investigation. On 11/30 LDK announced it had secured 344 tons of polysilicon and was on schedule in the construction of it's new plant. On 12/10 LDK announced a 10 year contract from Q-cell which included a pre-payment to help fund expansion. on 12/19 3rd quarter profit skyrocketed 40%.

This news helped lift LDK back to the level I bought it at. I sold at $57.85 on 12/10 when they announced the big Q-cell contract. This was quite the rollercoaster and the fact that I came out on top was both shocking and rewarding. I learned a lot from this experience and have made some rules which I will never break (until next time).

1) Don't purchase stocks in after hours
2) Set stops
3) Don't let a trade turn into an investment
4) Stick to the plan

This chart below seems unbelievable... If I would have sold, it would have been at the bottom and I would have lost everything. Stick to the plan and be confident in your decisions was one of the most difficult things to do here. Of course I got extremely lucky this time, but thats all part of playing the game.




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