The meltdown at Plasmon shows that even experienced and successful investors can get it badly wrong.
It's like watching a train crash in slow motion; it's ugly, but you can't not watch. That's what spectators to the unfolding Plasmon (LSE: PLM) debacle will be thinking, but shareholders will have a more direct reason to wince.
Having reached a high of 270p in 2004, Plasmon is now the subject of a possible takeover offer of “not more than 0.25 pence” per share, which the Board describes as “the best viable option for the Company”. That a fall of 99.9%.
Fortunately, my interest in Plasmon has been as a mere spectator, but it could easily have been otherwise. The company is controlled by Hanover Investors, which holds 25.8% of the shares; I've written about Hanover previously, and have been keeping an eye on some of their investments.
Tempting as it may be to piggy-back on the moves of successful investors -- Plasmon's shares more than doubled after Hanover bought in -- the meltdown at Plasmon has served to remind me of some of the reasons I didn't get burned with this particular one:
l Even gurus can get it wrong. Hanover has an enviable track record of restructuring, re-focusing businesses, and improving efficiency and margins, but they are not infallible. No investor is;
l Stick to businesses you can understand. While I can grasp the basics of Plasmon's archive storage technology, I couldn't properly assess its strengths and weaknesses in relation to its competitors. And honestly, how many private investors could, or did?
l No matter how much a share falls, it can still fall more. The market is currently providing us with more examples of this;
l Cash is king, at the moment. The latest falls were precipitated by Plasmon's need for further financing, and this is not a pleasant time to be looking for funds.
Despite the possibility of a bid at up to 0.25p, the shares are currently priced at 0.33p, so shareholders are apparently hopeful of a counter-offer, possibly from a rival. And they may be great value at that price, but as I start thinking that way I re-read the bullets above and decide to stay away.
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