Rotary was once a growing Engineering, Procurement and Construction company in the oil and gas sector. As a leader among the contractors, Rotary had a good reputation in the industry. This is reflected in its ability to clinch the massive USD 745 Million worth of contracts in the SATORP project in the Middle East for the construction of refinery tank farms. It is because of all these reasons, that I decided to invest in this company, hoping to see the realization of its potential in time to come.
All was well, and Rotary continue to announce more contracts clinched through the months and its share price remained relatively stable till 2011 when its CFO resigns and things start to take a turn. Share price starts to dip and falls to a new 1 year low. However, being naive and greedy, I held on to the counter, waiting for a rebound to happen.
Indeed a rebound occurred in early 2012, pushing Rotary's share price to to the high $0.70 per share levels. But greed continues to blind me, in hope that I may be able to break-even, I continue to hold on to it, but in my dismay, all that comes is just the continuous tumbling down of the share price, which never turnaround again.
Things worsen in September when Rotary released its first profit warning in recent years, stating that cost overrun in the SATORP project due to design flaw and the unforeseen increased in man-hours caused Rotary to suffer a huge 3rd quarter loss, and a projected full year net loss as well. This sparked the panic sale of its shares, and trying to be as calm as I could, I told myself not to panic sell at this time, as it will mean I am selling low.
After some thoughts, it seems that Rotary's share price is drifting lower and lower. The alert button in me was activated when its share price drifted below $0.40 per share. With this, I decided that it is time for me to cut loss to prevent further damage to my portfolio and hence I sold all my holdings at $0.395 per share, which was a massive 58% capital loss. If there is indeed a rebound after the sale, I can only accept the losses, as fundamentals have changed. The current Rotary, in my opinion, is not as strong and reputable as it was prior the SATORP incident, mainly because financially, it has took a big hit as we see its cash flow plunged in the released 3rd quarter results.
My thoughts at that time: I am quite hesitant to sell my holdings in this counter as it would mean a realization of a huge loss, right after the massive loss I realized in January this year from First Ship Lease Trust. However, it is also the lessons learnt in First Ship Lease Trust that I should follow, and understand that "hoping" for a rebound usually just make things much worse, as these hopes are not supported by any fundamentals. In the final quarter of 2012, Rotary is going to announce a full year net loss. In addition to that, if the 4th quarter results also suffered a net loss, I believe there will be more downward pressure, and that is too much risk involved. Hence I decided to cut.
Lessons learnt: The moment a company stops giving dividend, it is a clear signal to sell the shares of the company, regardless of the loss, as this move by the company signals a lot of pessimism in the near term future of the business. If I sold my holdings during the release of the 2nd quarter results, my capital loss will definitely be below 50%.
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