Paul Meeks: Run for the hills when this happens

Published Thu, Aug 25 20169:03 AM EDT

I traffic in tech stocks. When they're good they're very good, but when they're bad, well, you know. Occupational hazard. I've learned lessons over the years and I have lashes on my back to prove it. Academics tell you that the market is efficient, which means that a stock's price reflects all available information. I've been an adjunct finance professor since 2005 — I'm currently at Western Washington University — and I think that the efficient market theory is garbage. Therefore, I suggest that you develop a sell discipline that forces you to dump stocks under certain conditions. "Discipline" means that it's a dispassionate, objective measure. Fall in love with your partner, your favorite sports team, or whatever else, but not your investments. This is particularly necessary for volatile stocks like those in tech. Recently, two companies that I follow, one familiar and the other unfamiliar, delayed reporting their quarterly financial results. That told me that they were screwed and that their shareholders should bail almost regardless of stock price. A domestically traded firm is required to file its 10-Q report with the SEC 45 days after the end of each the first three quarters of its fiscal year. There's no 10-Q after the fourth quarter. Instead, the issuer must file its annual report, a 10-K, within 90 days of the end of that period. Most often such delays are due to a dispute between the company and its auditor over financial accounting. This is always serious. Sometimes it's even game over for a company. Although the stock could rebound if and when the smoke clears and the issuer is vindicated, "could" is not worth speculating once a company has been outed and its financial statements have proven to be inaccurate. Not only should you sell shares on suspected shenanigans, you may consider shorting such a name (although note that I haven't been a hedge fund manager for several years). My first recent culprit is Hain Celestial . I had been long the stock in 2015. It had been a Street darling. Through acquisitions, the company had been rolling up the wholesale organic foods industry; and, of course, everyone's eating healthy, or we at least have stopped our late night Taco Bell binges. HAIN's promotional founder and CEO Irwin Simon had been the can't-miss kid (although he's in his late 50s). He frequently had appeared on CNBC's "Mad Money." (This is no indictment of host Jim Cramer, whom I respect.) Unfortunately, last week, HAIN announced that it must delay reporting its quarter due to potentially erroneous revenue recognition on shipments to U.S. distributors that may have received concessions from the company. Also, the firm lowered its financial guidance. The shares immediately dropped 26 percent ($1.5 billion in shareholders' wealth was lost in response). Shoot first and aim later? Maybe or maybe not. Everyone knows HAIN. It's still a $4 billion market cap company. However, few know Power Solutions (~$130 million market cap), but it has been bit by the same bug and its flu is much worse. The company also has delayed its quarterly results, but unlike HAIN we haven't been given hints by management as to why. (I could speculate as to why but I won't here.) Suffice it to say, PSIX has had a string of errors whereas HAIN had been a Street fave, well, until it wasn't. I long had been concerned about management's aggressive financial guidance — the curse of another promotional CEO (Gary Winemaster) — and the revolving door at the top with the recent departures of PSIX's CFO and COO. Class, today's you've learned to rue the day that your company delays reporting its quarterly results. You may wish to throw in the towel on such a stock almost regardless of how much it drops in knee-jerk response. Yes, you may miss the stock's bounce, but you also could avoid a bankruptcy. Disclosure: Paul Meeks is short Power Solutions International (PSIX). Paul Meeks is a technology investor and member of the "Squawk Box" Platinum Portfolio competition for CNBC PRO.

Source: CNBC

I traffic in tech stocks. When they're good they're very good, but when they're bad, well, you know. Occupational hazard. I've learned lessons over the years and I have lashes on my back to prove it.

Academics tell you that the market is efficient, which means that a stock's price reflects all available information. I've been an adjunct finance professor since 2005 — I'm currently at Western Washington University — and I think that the efficient market theory is garbage.

Therefore, I suggest that you develop a sell discipline that forces you to dump stocks under certain conditions. "Discipline" means that it's a dispassionate, objective measure. Fall in love with your partner, your favorite sports team, or whatever else, but not your investments. This is particularly necessary for volatile stocks like those in tech.