Author: Spencer Mann
Model: Anticitrade
Disclosure: Long HQS
Trading in shares of HQ Sustainable Maritime Industries (AMEX: HQS) was recently halted after the company failed to file its 10-K. The company’s auditor recently resigned, noting that the company had obstructed its attempts at engaging a law firm to begin an independent inquiry into concerns over the company’s operations.
Spencer Mann runs Covestor’s Anticitrade model which is long HQS. We asked Spencer if he could provide his thoughts on the HQS debacle. His response:
Regardless of your investing methodology, each investor is required to make a set of basic assumptions to guide their approach to the market. As a fundamental investor who relies heavily on financial statements I have to make the basic assumption that these financial statements are accurate. Like any assumption, there are instances when things do not go as planned, such was the case with HQS. At this point it is uncertain how the HQS situation will fully resolve itself, but one thing is clear, this was not an ideal investment.
So what can be learned from this? While I usually spend additional research time with companies with a strong tie to China, in the future I will need to avoid these entirely or improve my risk assessment of them. However, if I avoided any investment where there was a chance of deceit or fraud I probably wouldn’t be able to purchase a car. I think the best protection from situations like this remains diversification.
Spencer Mann
Sources:
“Sustainable Maritime Industries, Inc. Receives NYSE Amex Notification Regarding Noncompliance with Continued Listing Standards” Filed with the SEC, 4/7/11. https://www.sec.gov/Archives/edgar/data/857073/000119312511091332/dex991.htm
“Andrew Intrater’s Resignation Letter’ Filed with the SEC, 4/6/11. https://www.sec.gov/Archives/edgar/data/857073/000119312511093291/dex991.htm
