EMAG: What a Wreck!


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You win some, you lose some, although I’ve been losing more often than winning lately.

The EMAG merger did not go through as expected today and when I woke up this morning, the stock had already dropped 50% and 44% by the end of the day. My stake in EMAG is now down 42%. Talk about a sickening wild ride.

Here’s the press release.

Emageon Inc. (Nasdaq: EMAG), a leader in enterprise medical information technology systems for hospitals and health care networks, announced today that it has been informed by Health Systems Solutions, Inc. (OTC Bulletin Board: HSSO) that it does not expect that Stanford International Bank Ltd. (SIBL) will provide the funding necessary to consummate the parties’ merger transaction today. The merger was scheduled to close today, February 11, 2009, in accordance with the terms of the parties’ amended merger agreement. Emageon is evaluating its options in response to this development.

Although it isn’t clear whether the deal has failed, there is no other choice but to consider it failed at this point. Right now I’m sure we feel half dead at this point but hope will only lead to disaster.

Yesterday, just before I left for work I put in another order at $2.64 thinking I would make a quick 10% or so with a day remaining. All publicly available information pointed to a closure. Unfortunately, we know the result.

Mistakes

Rather than assess my position and asset allocation, I got greedy and failed to minimize risk by adding to an already full position. Basically, this was a failure in discipline.

Although I know that markets are irrational, situations like yesterday, where there was a sudden cliff-like 25% drop before making its way up again, rung some alarms but I convinced myself that I was the logical one.

Even without news, when mergers drop on huge volume, some people know things that we don’t. Ask the DISK shareholders who too have been thrashed recently. 10% drops may be a fund closing some positions but 25% is a complete unload.

I should have been happy to take my winnings. No point in trying to squeeze every last drop. Lost 42% for a 7% gain. I wrote down my odds on this blog for a reason but I didn’t refer back to it for a reality check.

What Now?

I’m not hoping. I consider the deal to be a failure and this has now become a huge setback for my 2009 portfolio. I was up 1% yesterday YTD but it now looks like I’ll be further below the market.

The important thing is to not try and “win” my money back by speculating and taking on additional risk.

I’ll be monitoring this one closely and see whether future press release clarifies the status of the merger. If the announcement is made that the deal is truly off, then my stop loss should kick in at $1.25.

Disclosure

I hold shares of EMAG at time of writing with stop loss at $1.25

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