The WireCard fiasko and newspapers

I have been slightly absent from this blog this month as I got busy with the re-opening of my hotel here in Thailand. I am also working with a friend on a tiny online business, and yeah, the day has only 24 hours. But of course, plenty of things happened on the investment front and one topic deserves an honorable timely mention. I am speaking about the German DAX-quickie-candidate WireCard.

WireCard was the latest addition to Germany’s main stock index, the DAX. It joined the ranks of the most valuable German stocks roughly a year and a few months ago. But it has been a very short ride. Just yesterday the company was forced to file for insolvency.

About newspapers

I won’t go into details of what happened, who’s to blame or make any predictions on the future. There are tons of articles on these points out there. But I will say this: Reading newspapers really helps, and a paper like the Financial Times has much more credibility than any internet blog or forum out there.

I am reading and following several blogs and forums that give advice on stocks. I have also subscribed to several newsletters that supply me with daily updates and info about interesting opportunities and market developments. And often I can find some interesting stock picks there that are suitable for both, short and long term investments. WireCard was often cited as a shining star among German most promising tech and growth companies. And while the reports from the Financial Times were frequently mentioned, the narrative was mostly still being spun around to a more positive one.

But let me say this: When a major newspaper like the Financial Times starts to report on dirt about a potential investment and doesn’t back off even when being sued, then you better wait until things get clarified – beyond any reasonable doubt.

WireCard dropped like a stone when all the allegations and suspicions turned out to be true. Within only 3 days the stock dropped 98%, from slightly above 100 Euros down to 2 Euros.

WireCard found the perfect niche

I had a tiny speculative position in the company. 5 Shares which I bought at around 80 Euros apiece. On the day when the internal investigation report was announced, I moved quickly to sell and got rid of them just on time during the first drop at slightly above 50 Euros. I got lucky to get out with a small loss.

Despite the reports in the Financial Times, I also bought into a positive narrative. The propagated business model and the online news cycle for WireCard were very encouraging and promising. Of course, I still had my suspicions which is why I kept only such a small stake. But my hope was that the doubts about the company would have been eradicated during the investor’s conference. The shares would then have probably doubled in value by now and the company would show great potential to become a solid long-term investment.

Keep your emotions at bay

But greed and hope are seldom good advisors. Knowing this, there are strategies to control your risks.

First, you must know yourself and whether you are ready to take on the risk. If so, then control your stake, and have a plan in place to limit your losses. As in my case, I kept my stake at a very low level and made sure to have enough time to react when the news broke. This helped me to reduce my loss substantially.

If you are however not ready for any risk, then it’s pretty simple: Stay out of it. Wait for things to clear and rely on information and quality data. This approach will always serve you as a better advisor in the long-run. Yes, you might miss the opportunity to profit from a potential quick gain in the share price when news brake and the stock jumps to new heights. But if a success story is confirmed and gets in place, then the shares will likely keep rising for some time to come. Long enough to generate substantial gains for you over the years to come.

And the last point to mention is that whenever you are looking for quality information, remember that professional newspapers still have the best value proposition in terms of actual research out there.

Internet research forums, blogs, people like I, we are not really professional researchers. We dig into numbers and reports which are available online. Journalists are the ones who do the real work. Like in the case of WireCard, they got on a plane to Dubai, only to find empty offices. They tried to find connections across Asia, only to return empty-handed and with more questions than answers.

This is much more than any of us regular writers do. And of course it is, it’s their job. So you won’t do badly in putting some trust in them every now and then. Especially when it comes to making decisions that might concern your financial future.

Disclosure: I am not affiliated with any of the companies mentioned in this post.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s