This one sucks. I learned my lesson here.
My original idea with Migao was to buy a company that will participate in the growing middle class in China. A company like Migao was growing and was easy for the financial community to market to investors. Lets be clear, MGO (if it’s a legitimate company) is only an OK company if it’s in the right situation. As long as they have pricing power to their end-users they can stomach wide swings in their input costs (mainly potash).
However, I failed to realize how risky this company was. The real mistake was when I brushed off the RTO risk after a few companies in China were discovered as frauds. I didn’t think that MGO was a fraud given it’s high insider ownership and board. But that really doesn’t matter.
I sold MGO this last week after they were forced from the OSC to reveal the document that related to PEC (Potash Export Company). They were vague the entire time with who exactly PEC was and how they could supply so much potash without being on the radar of the investment community. I was actually OK with it. I figured that if MGO was to get a decent discount to the spot price, it would put the major suppliers in a tough spot. Once they were forced to issue the document, they still issued the bare minimum. I would have thought they would take the opportunity to explain to investors who PEC was. I was actually expecting a conference call or at least a detailed press release. Instead…nothing but the minimum.
Maybe this is a real company, but I just don’t feel right. That’s why I sold.
I am taking my losses and running for something I can really wrap my head around. This has been a very expensive lesson that I hope not to repeat again.