Enlightenment by a Market Wizard, Michael Masters on CATALYSTS

Accordingly to wikipedia definition, Catalysis is the process in which the rate of a chemical reaction is either increased or decreased by means of a chemical substance known as a catalyst. Unlike other reagents that participate in the chemical reaction, a catalyst is not consumed by the reaction itself. The catalyst may participate in multiple chemical transformations. Catalysts that speed the reaction are called positive catalysts. Catalysts that slow down the reaction are called negative catalysts or inhibitors. Although catalysts are not consumed by the reaction itself, they may be inhibited, deactivated or destroyed by secondary processes.

The analogy seems similar if applied to financial instruments such as stocks. I learnt this valuable piece of information from Michael Masters, who defines Catalyst as an event or an upcoming event that has the potential to trigger a stock price move by changing the market's perception about a company. Catalysts are repetitive events - earnings are reported four times a year; retail companies report same-store sales monthly; airline companies report load factors monthly and so on.

Even though this concept might seem rather simple and straightforward, I might not have been paying too much attention and neglecting it til now. Luckily, it always never too late for anything. Let me run through my thoughts and record this important lesson down as my personal learning log, and best method is to apply it to what has happened to some counters which can be explained by this phenomenon.

BYD - Brought to limelight due to investment by Warren Buffet. Further enhanced by planned listing in Chinese Exchange in 2010 and recently speculation of additional investment interest by Warren Buffet.

Midas - announced planned HK listing on 22 Sep 2009.
















Wilmar - Proposed listing of chinese subsidiary on HKSE. Price keep climbing even during reaction and falling oil price.















Noble - Huge investment by CIC - china investment corp announced on 22 Sep 2009















Another type of catalysts which is predominant recently is the issue of right issues by companies to raise cash, which is normally accompanied by a run up of prices before announcement and subsequently prices trading higher followed by the issue of the rights. Possible explanation could be market perceiving this as a positive catalyst of raising cash to expand business and of course increased liquidity.

Examples are as below:

Sinomem















Sinotel

Surprise earnings Catalysts
Hiap Seng















Tiong Woon















Failed Catalysis even though perceived positive investment by a synergistic fund and a fundamental strong stock failed to take off.
Tat Hong