One of the most interesting business stories of the entire year involves the ill-fated Samsung Galaxy Note 7. In times when technology giants seem to be all but infallible, we are once again shown an example when even the best-laid plans can go awry. After numerous units caught on fire, this entire line of mobile devices was recalled by the company itself in what was described as an “expanded voluntary” action (1). Although there is no doubt that such events are certainly troublesome to current owners, we need to take a look at what this means for the world of modern stockbroking. In particular, are we able to learn any lessons from such a colossal failure?
The Myth of Perfection
One reason why technology firms are such attractive investment opportunities is that many believe that they can do no wrong. This is particularly the case when referring to giants such as Apple, Microsoft and most recently, Samsung. Larger firms appear to be much more stable platforms when compared to start-up enterprises and thus, some stockbrokers will allocate a large proportion of their portfolios into this sector. Samsung has proven that even giants stumble from time to time.
Transparency Issues
One of the concerns that some regulators have brought up is that Samsung was rather late in admitting that there was a problem with the Galaxy Note 7. Whether this was a form of damage control or an action caused by the hope that any problems were few and far between is still not known. However, it can only be assumed that they were well aware that there would have been a run on their shares if it suddenly emerged that the flagship Galaxy Note 7 was being pulled from the marketplace.
The main takeaway point from this lack of real action (until the very end) is that larger firms can sometimes be less than scrupulous when it comes to divulging negative news. Small- and medium-sized companies are often forced to adhere to much tighter regulations and truthfully, they do not have much of a choice in the matter. To put it bluntly, we should never confuse the market capitalisation of a company with transparency and complete honesty.
The Brighter Side?
Of course, Samsung will emerge from this recent setback. It is likely that they learned valuable lessons and while they are now taken out of the race to compete with the iPhone 7, The worth of this company will rise again. To put this in perspective, it has been shown that no less than $10 billion dollars was wiped off of the market value of Samsung shares soon after their “voluntary recall” was made public (2). This has even been termed a so-called “fire sale” by some analysts as stockbrokers began to panic sell their holdings in order to not be caught in a negative position.
Still, this could also be a great time to buy. There are a few key points behind this reasoning:
- We are likely to see a support level soon; leading to higher trading prices.
- Samsung is too diversified to fall into negative territory for long periods of time.
- Institutional investors could already contemplating another purchase.
All of these indicators illustrate that even when a large company is down, it is far from out. Those who employ efficient trading platforms such as CMC Markets may be wise to consider a position within Samsung in the near future. The stockbroking expression “never buy when it is high” is perfectly appropriate with this scenario.
This is the primary reason why mainstream news needs to be taken with what can only be called a grain of salt. As opposed to highlighting the positive aspects of executing a short-term position, most sources stress the downward momentum of the company itself. This is nothing more than sensationalism. Astute stockbrokers will instead look at the bigger picture and realise that while the company has indeed stumbled, its shares are currently extremely undervalued. Whether one wishes to hold for a medium-term position or is looking at long-term gains, there is no doubt that Samsung is a very attractive opportunity for some traders.
