My Parlux Fragrances Adventure: A Painful Investing Lesson

I threw in the towel on Parlux Fragrances (PARL) on Monday. After seeing a run up of over 10 percent Monday morning, I took action.

First, I scoured the web for any news that might have been released. I checked Yahoo! Finance and Google for any new news but I found nothing. I also checked SEC EDGAR for any new filings and discovered none since October 4th.

Given that I found nothing new and it was a holiday Monday (Columbus Day) I decided that the fluctuation in Parlux share price might be short lived. I set a limit order for $6.25 for my 400 shares in the Special Situation Real Money Portfolio. The trade occurred shortly after I put in the order.

I’m really glad to be off this roller coaster. With the CEO continuing to dump shares and act irrationally, I saw a lot of risk.

This whole episode was a painful lesson. I really pulled the trigger too early on Parlux Fragrances when I heard the CEO was taking the company private. I really should have waited for an official SEC filing regarding the going private transaction.

So how much did this trade cost the Special Situation Real Money Portfolio? I lost $1,859.98, a 43 percent loss on my investment. This is the worst loss so far in the Special Situation Real Money Portfolio. I definitely won’t be bending my rules for investing in going private transactions in the future after this painful lesson.

On the positive side, the overall performance of this portfolio is still positive. I’ll provide the performance details later this week and update you on other transactions that have occurred since my last portfolio update.

PARL 1-yr chart:

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Comments

[NO DooDahs:]

First, did you not look at the cash flow statement showing negative cash from ops and investing, and cash inflow from financing? Bad signs.

Second, never catch a falling knife. Just look at the chart, is it falling? Don't buy. Wait until it stops falling, then buy. Don't catch falling knives, let them hit the ground, then bounce, then settle - then buy.

Third, you are probably leaving the stock at the absolute worst time. NOW is the time to buy, not then. That is, if you think it's a good value ...

2006 Oct 12 10:52 AM