HOW TO IDENTIFY A FRAUD PROMOTER GROUP

identifying the integrity of promoter is one of the important criterion in stock selection.the numbers in the balance sheet means nothing unless u are sure about promoters.i urge members to contribute with example.
few yr back i was invested in a kolkata based company. the balance sheet was excellent. reserve was 5 times than debt,fixed deposits alone was more than total debt.y-t-y sale was growing at more than 20%,profit growth was 20% for last 5 yr,free cash flow was rising too.so invested happily and averaged down continiously.the p/e was around 4, div yld around 7% ,.i never thought of capital appreciation i was looking for the divident. i was new to market then so i thought i have discovered a great company at bargain price.but it was a value trap, i finally sold after 2 yr .any way its now trading at 1/4th of my sell price.still now when i study the balance sheet during the period i can't find any flaw whatsoever except the unusually low p/e for a company that is growing at cagr 25% for last 3 yr.now i am a firm believer of efficient market hypothesis,i.e market always know collectively more than u.if there are mispricing they tend to correct quickly,and unless u act fast very vest u can't beat market.
so my conclusion: a high growth company with relatively clean balance sheet can't quote a very low p/e and p/b unless the promoters are fraud.in my example the ceo and cfo had both resigned and under scrutiny.though no outright fraud charges till now

 

Thanks for sharing your experience. But is there a way to find out about the management, and any fraud associated with them? Ofcourse market know much more than an individual but at the same time Indian market is more institutional investment driven which subsquently affected by the global macroeconomic situation and one can always find stock which are undervalued. One example is force motor which has really clean balance sheet. I invested in that stock few months back when the stock was trading at around ~1000 and it has already given me 3X return.

 

thanks hearing about ur profit.i did't say that i am correct,but my logic is that a good stock can't remain undervalued for long unless promoters are fraud.your experience proved m point,doesn't refute that.in ur case force motor quickly become correctly valued by market in few months.in my case the stock remained at between p/e 3.6-5.5 for 4 yr or more.
happy investing

 

anindyaswati ji ,

in my experience it is a complicated issue ...
but i share my experiences with you ....
very long back i watched " satyam computers " carefully , at that time i focused on promoters stake
every year it is decreasing , so i suggest my friends that stop investing in that company ....because promoter is not having confidence in that stock ..... i always recommend "Wipro " in IT Sector stocks to my friends , my friend always criticized me about satyam computers stock ..because of you we miss lot of good opportunities .... later very long time at satyam crash they realized ... truth

they recognized me after their investments worst affected ....
never invest in a company , promoters stake below 40 % stocks

promoters psychology is more important please look at that way

ALL THE BEST

 

identifying the integrity of promoter ,we should study " Fund Flow and Cash Flow " Statements carefully
is the best method to identify the integrity of promoter .....

 

Check out Management X-Ray

 

Yes you must always assure that the information on the basis of which you are investing is correct and can be trusted to be used a base to draw useful conclusions.

 

anindyaswati ji ,

you have started very useful thread to all , congratulations and Thank You Very Much anindyaswati Sir ,
and It is a most difficult subject also , we have no information regarding companies except annual reports, and other financial websites , in that only we have to find good and bad points regarding companies financial analysis ,

i want to give some examples ,
1. Moserbear
2.Jp assosiates
3.Everon
4.Educom
5.Pentamedia
6.silverline
7.suzlon
8.GMR Infra
9.Lanco Infra
10.satyam computers
11.pantaloon retail

these companies may not be fraud or may be fraud , but definitely management efficiency problems , all investors lost huge money
reasons are so many ...

in Indian market almost 90 % companies are not perform well and not up to the mark ....

so my humble suggestion to all investors is please book profit when ever it cross double the amount bank interest rate , increase stop loss price until it went hit , and take your entire investment in that company and remaining profit leave it for investment , in this process investor risk reduced , and in my experience

if any company not performing continuous 2 quarterly results or drastically net profit down in a single
quarterly result dont invest in a price fall wait and watch until normal qty results in next 2 quarter only take decision

please focus on Cash flows and fund flows and identify frauds some extent

i always said to investors for some risk reduction " dont buy low volume traded stocks " , and stop loss is must for investors or traders ....

ALL THE BEST

 

V. Imp point.

100% Agreed. Such stock are manipulated by operator.

 

rama murthy sir. there are fraud promoters and also inefficient promoters. those are inefficient to grow their business also doennt result in wealth creation.

 

Inefficient promoters more Dangerous than Fraud Promoters
Inefficient promoters waste our money and valuable Time also