When Investing Goes Bad – Story of GTAT 6


Ask anyone and they will tell you that investing is the key to building wealth. Investing leverages your time by making your money work hard for you. Through the power of investing, you can compound your returns over time and live a life of financial freedom.

Whilst many people talk about the upside of investing (they are many), not many talk about the downside to investing. Yes there is a downside. When the process of investing is not done correctly, by not doing your own thorough research, you can actually lose money. And if greed kicks in, you can lose your entire life savings. This is exactly what happened to a group of investors that invested their life savings and more in a speculative GT Advanced Technology (GTAT) stock. And through the journey of this stocks rise and consequential fall, a group of investors kept updating a forum with their thoughts and emotions. A link to the forum can be found below.

GTAT was supposed to be the primary supplier of sapphire glass to Apple, which everyone thought was going to include it on the iPhone 6 and iPhone 6 Plus.  However, plans changed as GTAT management was unable to execute on time and this consequentially led to an out-of-the-blue Chapter 11 bankruptcy filing and the near total decimation of the common stock with practically no warning. The company in fact had had a positive net worth, hundreds of millions in cash at the last quarterly filing, a good probability of making a lot of money in the future, and management reiterating earnings guidance only a few weeks ago.

It was later found thatt GTAT management had not only made poor capital structure choices, it had signed legal agreements that required it to come up with huge amounts of liquidity on little to no notice under the wrong circumstances.  Primarily, they funded long-term operations with short-term capital, negotiating a nine-figure, multiple-installment working capital loan from their most important customer, Apple, and then gave Apple the right to demand accelerated payment at virtually any time.  Even issuing zero coupon junk bonds on a long-term basis would have been preferable to such a make-it-or-break-it contract.

 

You see, in order to make prudent investment decisions, you must be comfortable with reading financial statements. It is imperative to know the capital structure of the company and they ways in which it is financed.

But the story of GMAT should be a lesson to all investors. You should never margin trade (especially for the average investor), never get too greedy by putting all your wealth in one stock and you should always do your own due diligence – don’t by a stock just because you read about it on some website or forum.

 

The Forum

Now where is the forum I was talking to you about. Here is the link. I suggest you start reading from this page where people were talking about how foolish it would be for them to own index funds or invest in a traditional sense.  (http://forum.thecontrarianinvestor.com/index.php?threads/gt-advanced-technologies-inc-gtat.69/page-320#post-20215)

Then move on to this page which occurs on the morning they realize the stock isn’t trading anymore as the company has gone bankrupt (http://forum.thecontrarianinvestor.com/index.php?threads/gt-advanced-technologies-inc-gtat.69/page-499).

By reading the above forum, it is incredible to see an investors mindset during different periods from both a financial and physiological point of view. But when reading this forum, please do remember that these are a group of people that have lost everything. Please do not post anything on the forum and this could cause them to feel more regret is not only cruel, it is unlikely to do any good considering they just learned the most painful lesson of all.

 

Here are some of the quotes from the forum:

“I’m not coping well at all. I’m watching 25 years of savings going down the drain. I was stupid enough to have my entire retirement fund invested in this. All I can hope for is to eventually break even if it should ever get back to $5. This was like a punch right in the gut.”

“I am dead meat. All my money is in GTAT and on my stocks I was doing margin. Since I owe way more than what’s in there, I don’t know what will happen to margin. Some people were smart, I believed so much in GTAT potential and lost all my savings including my 401K, IRA. At this point, I don’t know what to do. I told my wife about this and she was upset and angry at my stupid move. But she still loves me.”

“I sold all my shares. I am young and taking this as a life lesson. I am now with about the original amount in invested in in 2009.It is almost like I didnt invest for 5 years. All of it might as well sat in a bank account for 5 years with no interest. I am sick about this but it is just money. Remember that. Have a good day everyone.”

“Sorry to all those who lost today (myself included). Laying in bed last night dreaming of what to do with my gtat wins when my ship came in… it turned into the titanic. It may seem like the end of the world to some of you, but I assure you its not. Hang in there and use this as a lesson. Life goes on…”

Please like & share: