Three-Day Rule

Years ago I noticed that bad news for a company often has its most extreme effect on the third day after it is announced.  In an earlier post I suggested that margin calls are the reason.

With Anthracite, I thought the news was telegraphed last month when they didn’t make their debt payment of $1.6 million, and that the end of the 30-day cure period and formal default was just a formality.  Silly me.

Last night, about when I posted about the situation, the New York Stock Exchange halted trading in preparation for de-listing.  Today, the de-listed stock has a new symbol to trade on the pink sheets, and half my money is gone.

Good thing it was money that I hadn’t gotten used to having, since it showed up in the account because I bought when Dubai World rattled the markets.

Today, I have the proverbial trader’s quandary:

If it was a great bet at twice the price, why shouldn’t I buy any more?

Answer:  Because I have already put all the “mad money” into this trade that I plan to risk.  If the trade works, it will work for my 25 cent shares, my 40 cent shares and my 55 cent shares.  If it doesn’t work, even today’s 13 cent shares will be worthless.

Next comes the unnerving game of chicken with the unsecured lenders.  Management will do everything they can to convince them they will get nothing.

Creditors and preferred shareholders, even those who bought in for 5 or 10 cents on the dollar will make noise about the end of Western Civilization if they aren’t given full face amount restitution for their bonds/stock.

Both sides will overstate their cases.  Then a deal will get done.

I think I’ll wait and see how it turns out.

Now you see why I said “Don’t use the grocery money.”

I’m just amazed that the 3-day rule looks like it’s still in force, even for a stock that had no possibility of being held on margin anyway, having been a penny stock even before the “bad news” hit.  And this was bad news we already knew.

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One Response to Three-Day Rule

  1. hhill51 says:

    Bleah! (A bond market technical term.) Even the 13 cent common shares were half price by the end of the day. If you didn’t see it, the new symbol for the common is ACPI and for the preferred D is ACPIO. If you’re in the trade, expect no news or bad news only for the next month or more.

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