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A small, speculative company in my portfolio made the grand press release that they were rescheduling their quarter end conference call for one day later (oh my!). The stock promptly lost nearly 2/3rds of its value (please don't cry for me, before the drop, it was .15% of my portfolio).

Does the market automatically assume a rescheduled call means something major, like the auditors aren't signing the financials, is going on? (If so, why?) Does it mean that 95% of the shares' holders are insiders who all decided to sell when they learned about whatever is causing the delay in the con call? What gives?

Edit: It turns out there was an SEC filing last Friday. The SEC filing did not appear in the company's news feed that I read (why the heck not?). So I was unaware that the filing said they have debt due in June which is nearly twice the amount of cash they have. So the market was selling because of that, not the rescheduled news conference.

  • Is this really personal finance? – DJClayworth Apr 3 '12 at 15:57
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    @DJClayworth actually moms and paps are the ones being burnt the most by such volatility, so I think its on topic here – littleadv Apr 3 '12 at 18:53
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Does the market automatically assume a rescheduled call means something major, like the auditors aren't signing the financials, is going on?

Yes.

(If so, why?)

People - including investors - are emotional. And suspicious. And paranoid. Financial discussions tend to make everything sound like a cold, clinical science, and to some degree that is true. But you should never look past something much more simple - people are people.

And of course, once all is said and done, acts like a reschedule often do mean something is up. So you've now got a nice mix of fact and emotion.

Does it mean that 95% of the shares' holders are insiders who all decided to sell when they learned about whatever is causing the delay in the con call?

No. See Littleadv's answer.

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Insiders (those who are aware of non-public material information, not necessarily employees) are the ones who actually cannot sell once they learned about whatever, by law. Martha Stewart went to jail for that.

Any such deviation from the norm triggers an abnormal response and an avalanche of rumors, so by default, investors assume something bad and try to minimize the loss. When dealing with a tiny company (market cap of less than 15M) with a tiny market volume (6.2M), the swings can be very significant.

For such a small company, it is safe to assume that something happened that led them to delay the conference call, and since they didn't say what had happened, investors assumed the worst. It might end up as the CEO and CFO having a stomach ailment after celebrating 100% growth in revenue they were going to announce, but you'll have to wait and see....

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