Novice Investing - Taser Stunned by SEC

Date: Monday 01st 2008f December 2008 05:18:12 PM

Taser Stunned by SEC - 09/28/2005

By: Novice Investing Staff

In 10 Reasons for Selling, we discuss on how we should sell if the book is unclean. That is, when The Securities and Exchange Commission (SEC) comes knocking on your door, it is one sign that the SEC suspects about the honesty of management.

On 27th September 2005, SEC knocked on the door of Taser International (TASR), the maker of stunned gun. It has intensified its investigation on Taser into formal probe. While SEC may find nothing is wrong with Taser, the fact that they step up investigation into 'formal probe', indicates that the SEC strongly suspect something is fishy inside Taser's.

Can investors profit from this event? Certainly. Is the risk worth taking? You be the judge. At Noviceinvesting, our first priority is to preserve our hard-earned capital. How can we achieve that? Buying companies with significant net cash is one. If the company is profitable and paying dividend, then a high and lasting dividend is another way of preserving our hard-earned money. Other things? Valuation matters too. We prefer companies that are yielding at least 3 % above current free risk interest rate (10 yr bond). If 10 year bond is yielding 4%, then our common stock needs to yield 7%. Taking the reciprocal of yield, we get the widely used Price Earning (P/E) ratio.

While buying Taser today (it drops 13% on 09/27/05) might be compelling, the risk of another fallout is greater than the reward of capital appreciation even if the SEC probe find nothing is wrong with Taser. We are more comfortable of taking the risk in stocks that fall due to fundamental reason, as it is easier to quantify the damage. One such falling stock on 09/27/05 is Audiovox Corp. (VOXX). It dropped 19% on 09/27/05.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Taser International Inc.(TASR), Audiovox Corp (VOXX) or other securities.

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