This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Rino International: 6 Lessons for Investors

By now anyone who invests in China stocks is familiar with the carnage going on with the stock of Rino International (RINO). On Nov.10, the Hong Kong based research duo (and dedicated short seller) known as Muddy Waters produced a 30-page report on Rino declaring it to be an abject fraud and with a target price of $2.45 vs. its then price of around $15.00.

The stock has now been halted and the share price stands at $6.07, a decline of 60% in seven days. Their auditor, Frazer Frost, came out on Friday and confirmed that there were in fact phony contracts with revenues that didn't exist and other irregularities. I have been following this situation closely and I feel that there are a number of important lessons that can be learned from it.

Readers may remember that Muddy Waters and I have a somewhat strained history following their report on Orient Paper (ONP - Get Report) in June 2010. By pure coincidence we had happened to tour the ONP facilities on the same day in January 2010. Where I saw opportunity, they saw fraud. What ensued was an acrimonious online battle of words between the two of us as to whether or not the company was a fraud.

When MW first released their report, ONP stood at $8 and they declared a target price of "less than $1." The stock bottomed at about $4 but recently rebounded to as high as $7.67, almost a double. MW has gained significant credibility due to its extremely accurate and timely call on Rino and now many investors are rethinking their refound confidence in ONP and have been dumping the stock. It now stands at $5.58 -- 28% below its recent high. There is currently an independent investigation under way being conducted by accounting firm Deloitte & Touche and law firm Loeb & Loeb, so the final verdict on ONP will have to wait for the results of this investigation.

There are a number of key lessons that investors can take away from situations like this.

Lesson #1. Shoot first, ask questions later

When a serious and detailed allegation of fraud surfaces, sell. Sell immediately. In the case of both ONP and Rino, the stock "only" fell 15% upon the release of the report. It was only after the report became more widely disseminated and was joined by other vocal online short sellers that the share prices took the 50-60% dive. I have seen this in the case of many other stocks including (UTA), (FUQI), (NEP - Get Report) and others. Consider the first 15% to be a warning shot and take notice. It may be tough to swallow the loss but it is better than what will come next.
1 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
NEP $27.95 1.90%
ONP $1.20 -3.22%
UA $40.08 -6.20%
AAPL $94.21 -1.00%
GOOG $697.52 0.75%


Chart of I:DJI
DOW 17,651.16 -99.75 -0.56%
S&P 500 2,050.19 -13.18 -0.64%
NASDAQ 4,727.0170 -36.2070 -0.76%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs