On Oct 24 2013, Muddy Waters Research released a 81-page report said “NQ is a massive fraud”. They believed “NQ is ZERO”, and rated it as Strong Sell. At that day, NQ stock price dropped 47%.
Almost one week later, NQ defended with its 97-page report to prove Muddy Waters Research was totally wrong. At the same time, the CEO of NQ said they would start the shares buyback plan, which showed their confidence.
As they were going to release third quarter earnings report. The restriction is that they couldnot start their plan until three days after the earnings report.
I do not want to discus which side is right. As I noticed these days. Fours funds has started to buy more NQ shares, or even doubled their positions. And as the officers said in the investors day yesterday, NQ has opened the buy window.
A lot of individual investors expected a dramatical increment to be happened. Most of them, as one week ago I saw in some websites, wanted to sell their positions immediately when the price hit 16 USD or even only 15 USD. They do not care if this company is worthy to invest or not, but desire quick money.
As we can see, these days, NQ keeps going up only a little everyday. Actually this is NQ share buyback strategy. They will avoid any dramatical increment, but increase the price step by step.
NQ will not buy a huge amount shares at one time, but buy a small part every time. When there is sign that short side is going to attack, NQ will defend tough. When the direction is heading up, they will stop buying more shares.
This smart strategy has two advantages: firstly, the short side desire huge return on their positions, but everyday, they have to suffer loss. However the loss is very small for one day. The short side will not sell their positions which may lead the short squeeze. They will wait for any opportunity for their huge quick money. At the end, when the short side realize they have lost a lot, there will be no opportunity for them to make up. They will pay for what they had done. Another advantage is that the long side may increase enough confidence for their long positions on NQ. They will give up their original ideas to sell the positions at 16 USD, which may fail the effort from NQ and additionally, give more opportunities to short side.
At the first two days when I knew NQ had started buyback plan, I was confused why the action was so modest.
Now I come to know it’s the smartest way to kill short side and keep long side’s confidence on NQ.
Actually, NQ should send Muddy Waters Research a big present for two reasons: one is that thanksgiving day is coming, and the second is that NQ should thank Muddy Waters to give them the opportunity to show what products or services NQ has, what NQ is doing, how NQ makes money, and is NQ a good company for people to invest.
I long NQ.