Kimly and M1

These two stocks taught investors a lesson today.

First off, M1. The telco announced that its
"... three biggest shareholders - Malaysian telco Axiata Group Bhd, Keppel T&T and SPH - confirmed on Friday that they are currently in the midst of conducting a strategic review of their respective shareholdings, which may or may not result in a transaction. The three respectively have 29 per cent, 19 per cent and 13 per cent stakes in M1 for a combined 61 per cent holding."

Right off the bat this morning, the stock advanced  to last Friday's height, at 2.28, almost equaling what was reached last trading day. However, the bulls lost steam rapidly and closed almost 1% lower than last closed.

I firmly believe that, for acquisition deals, trying to buy in before any confirmation is risky. With no price point in mind, there is no idea if the deal is worth the risk. With no timeline in place, this deal could become cold. Imagine a deal that pays only 4% a year? That is no higher than what a high-yielding dividend stock. One should also assess the possibility of the buyer's ability to make the deal possible-- if its financial health enable its acquisition.

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Kimly is a new issue that just started trading today. Its IPO was beyond popular, and many investors took on the easily understood PE of 12x and guess that it is worth more than the commonly price 24 times PE of available issues.

So it was no surprise the stock went straight to 0.50$ during pre-market, and went as high as 0.565, before cooling down to 0.44. For investors who said hello at 0.565, that represents a 22% loss in a single day. I was prepared to only pay 35-40 cents a share for this stock, but its popularity turned me off.

Trading is a bet on human's emotion and crowd direction, while investing is about a company's worth. Nobody knows where this stock might head next.

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These two popular issues taught investors two lessons today. One, never partake in an arbitrage until it is confirmed. Two, valuation is crucial.