November 21, 2011 (Chinavestor) Shares of Focus Media Holdings (NASDAQ:FMCN) fell over 50% by 1:30 P.M. after Muddy Waters published a report suggesting that the company has massively overstated results and committed other types of securities fraud. Volume was 63.5 million shares traded by 3:P.M., over 20 times more than usual.
Given Muddy Water's track record, the huge sell-off is understandable. We can't say much now except that SELL.
But the good news is that Chinavestor was one of the companies issuing warnings about Chinese reverse merger companies early. We dedicated a whole newsletter to this issue, titled Chinese reverse mergers fail investors. In that Newsletter we argued that
"We are not here to say that all Chinese listings are bad. Far from it. It would be a huge mistake to throw the baby out with the bathwater. To avoid such lemons, we think investors should pay attention to the following four simple measures:
- Listing via IPO or Reverse Merger
- Top Four Auditor
- Market Cap
- Sufficient Trading Volume
We consider the following group of stocks the safest: those that went public via an IPO, have a top four auditor with a market cap over $250 million and have a daily volume of 100,000 shares or more."
Given that Focus Media Holdings (NASDAQ:FMCN) did not qualify for all these criteria, we did not have the stock in any of our portfolios or weekly trading stock lists. It really pays out to have advisers with knowledge. Wish you successful investing!