Brian, it is a very different thing to say there are 15 "legit companies" and to say that 285 are frauds. For most of those, we simply do not know with any decent probability whatsoever.
It is impossible, literally so, to be 100% sure of any company.
How many of these 300 companies have been PROVEN to be frauds? A few were halted by the SEC, a few admitted to fraud, a few have been halted and are under investigations by their boards. Many have been attacked by shorts. Even if you add all those up, it does not constitute a majority of the space.
There are many many companies which I would not touch at all -- The risk being too high. I could be wrong though and certainly do not call all of them frauds.
There are also many I am uncertain about, thinking it could go either way. Depending on the evaluation, short term catalysts, etc, I would be willing to own some of these.
There are a very few I am semi-comfortable with owning long term.
I find it disingenuous to have anyone declare 285 out of 300 to be frauds (and especially when they say they are being lenient with that categorization) when certainly not that many have been proven to be frauds. The fat lady has NOT sung for these companies yet.
Take UTA, a name with risk who has been attacked before. You had written it off as a fraud, right? Did you expect them to get the 10-K out and remain on the NYSE? I suspect that came as a surprise. Of course, this not mean there is nothing wrong with the company, but it does go to show how quickly many in this space are now jumping to categorize someone as being a fraud -- Often with lackluster proof.
Take YONG for example. A few weeks before Morgan Stanley did its decision to invest, with the increasing short interest and declining stock price -- Didn't you think they were 90% probably a fraud? (Many were starting to anyhow). Obviously that probability is much lower now.
Thats all i'm saying. Be careful not to become so convinced as to become too polarized and one-sided.
Many companies, I expect, will turn out to have problems of one kind or another. I also expect many of those with problems (like CBEH, etc etc) to go through a tough period but ultimately have value for their shareholders. Maybe only 70%, maybe 50%, maybe 30% of what we think currently they are worth for some -- But I expect many will not go dark and will resurge at some point.
TXIC is one example of a company with real assets that has problems with related-party 'discounts' in China for example. They replaced the CFO, they got rid of their american-based CEO -- But they are still reporting and are getting back on track with filings. The stock has been stable for many months, actually going up a bit lately. This company might well stage a comeback at some point in the markets.
Many companies which we are now writting off completely may become like TXIC on the road to recovery (or so it seems, I don't own TXIC). Others will become a RINO.
With regards to institutions, most of these companies have had very little participation from non-hedge fund types. Certainly I know many hedgies who are salivating on going long some of these companies as they get cheaper and cheaper -- Some have dipped their toes, others are waiting for better timing. With many names removed from the space and others being much cheaper, the remaining market-cap in the Chinese RTO pool will be much much reduced - requiring many many less owners to sustain price. Once you start seeing some sustained bottoms in these names, I think you will find there will definitely be buying interest out there.
-Fernando
