Warning Signals bei www.virtualchina.com/home.html
By Douglas C. McGill
Judging from e-mails from my China investor friends, I've been less than crystal clear about my views on The Hartcourt Companies Inc., the California-based China Internet company whose stock has rocketed more than 6,800%, from a penny stock a year ago to $17 today.
Hartcourt (ticker: HRCT), led by a charismatic CEO named Dr. Alan V. Phan, claims to be competing with the likes of Chinadotcom, Pacific Century Cyberworks, and Softbank as a holding company of Internet startup firms in China and Asia.
That I've not been clear is proven by the fact that on bulletin boards like Raging Bull, some people cite my articles as evidence that Hartcourt is a buy, while others say they show it's time to short sell Hartcourt, and fast.
Let me pull no punches here: I wouldn't buy The Hartcourt Companies Inc. on a bet at this point. Not until Dr. Phan, or somebody else at the company, answers a few questions for me.
In posts written to their bulletin boards, some investors have said that I know no more about the company than anyone else who reads its Web site, its press releases, and letters to investors from Dr. Phan.
These investors are absolutely correct. I have done no original research on Hartcourt since I spoke with Dr. Phan in May, 1999. Everything I have written thus far is based on my recent reading what's in the public record.
In my first column on Hartcourt, I said I would devote myself to learning about the company, and to report to my readers about my learning process along the way. That's just what I've done, and what I'm doing.
As I've learned more and more about Hartcourt, I've had my moments of belief and high interest, and my moments of disbelief and incredulity.
Now that the first phase of my learning process is over, I can report: my moments of disbelief and incredulity far outnumber my moments of belief.
These I take to be warning signals of a questionable stock:
1) A pattern of exaggerated company claims. Last May, Hartcourt said in a press release that the company was "the exclusive commercial internet provider in China." In fact there were already several dozen internet service providers and content providers in China, including sohu.com, sina.com, netease.com, Unicom Sparkice, zhaodaola.com, netease, sinopolis.com, etc. In a September press release and a December letter from Phan to investors, the company wrote that UAC Online Stock Trading Inc. was "the first and only E-trade of China," and "the only system of online stock trading in China," respectively. Yet www.stockstar.com.cn, www.99stock.com, and www.kangxi.com all had online stock trading on the dates of those writings. Almost every page of Hartcourt material to me contains statements that severely test the limits of acceptable hype.
2) Hartcourt's name never shows up in the establishment press, which is covering the exploding Internet sector in China like a blanket. Pacific Century Cyberworks, Softbank, and chinadotcom all have their every move charted by the China reporters of the Wall Street Journal, Business Week, Fortune, etc. The only time Hartcourt's name seems to show up is in its own press releases. If Hartcourt really was on its way to becoming "the premier financial portal in Asia," you'd think that Business Week would have heard of them by now.
3) The company's home page links to the HRCT bulletin board on Raging Bull, an excellent Web site but one that's devoted to promoting the fine art of stock trading, not stock investing. Why is a company so interested in creating long term shareholder value addressing itself so devotedly to online traders in the stock?
4) The comments by investors on the bulletin boards, such as Raging Bull, read to me like textbook examples of traders' euphoria. "I'm draining my resources to buy HRCT," writes one investor. Says another: "I'm looking around to see if there's anything else I can sell to get more shares. It's human nature to get excited at this point, so close to the major moves this stock will make." But the stock was already up 6,000% when the poster wrote that note. And he's looking forward to more? That's a warning bell, right there.
5) The CEO is always promising something great that's just around the corner. New highs in the stock are pegged to promise after promise, not to success after success. True, Amazon hasn't made a profit either yet, but at least with Amazon you can point to real books from Amazon that have arrived in your mail, to Amazon warehouses, to Amazon ads on TV. All stuff bought with real money. What have we actually seen that Hartcourt has bought besides percentages of stakes in companies that are hard to follow and based in a very distant land?
6) By the way, how many investors in this company speak and read Chinese? How many investors have visited China and kicked the tires at UAC Stock Exchange Online Ltd, at Hua Xia Securities, at Financial Telecom Ltd., at Innostar HiTech Enterprises, and the other companies in Hartcourt's portfolio? How many investors have read independent analyst's reports on any of these companies? Would you buy Coke or Nike or Boeing this way?
7) There seems to be only one person I'm asked to put complete trust in as I put down my investment dollar in Hartcourt -- Dr. Alan V. Phan. Now, Dr. Phan is a gracious and self-effacing man on the telephone. He's clearly a great motivator, and he writes entertaining letters. But I surely don't know him well enough to entrust him, and him alone, with my hard-earned lunch money.
To reach Douglas C. McGill: firstname.lastname@example.org